Author: DLNews

Translation: Deep Tide TechFlow

Deep Tide Introduction:S&P rated Sky's USDS and DAI B- last August, on par with the government bonds of the Democratic Republic of the Congo, classified as junk bonds. To attract institutional investors, Sky and its subDAO Spark are repackaging debt, isolating high-risk income sources, and launching junior capital vaults. Credit ratings are becoming a key threshold for DeFi protocols to attract traditional financial capital.

• Sky aims to improve its credit rating.
• This DeFi lending institution received a B- rating from S&P Global Ratings in August.
• Credit ratings are becoming increasingly important for DeFi protocols.

Sky and its subDAO Spark will repack their products, minimizing exposure to high-risk income sources and launching new capital vaults to enhance Sky's credit rating with potential institutional investors.

In August, S&P Global Ratings assigned a B- credit rating to this decentralized finance lending institution, placing its USDS and DAI stablecoins at the same level as the government bonds of the Democratic Republic of the Congo.

As the protocol seeks to attract more institutions, their goal is to improve this rating.

"We have reached a dominant position in the current market. We need to grow into TradFi," Sam MacPherson, CEO of Phoenix Labs, the core development team behind Spark and a core contributor to Sky, told DL News in an interview at EthCC in Cannes.

"We are very focused on improving the weak points that traditional institutional participants are concerned with," he said.

As blockchain technology becomes more accepted and adopted by the largest financial institutions in the world, capital from the traditional financial world is flooding into DeFi.

DeFi protocols hope to attract these new investors, and one good way to do so is to achieve strong scores from respected rating agencies.

Credit ratings indicate to investors the likelihood that a debt issuer may default on loans or other debt instruments due to bankruptcy. They are crucial for traditional financial firms as they help manage risks in the financial markets.

High-yield bonds, often referred to as junk bonds, are any debt securities rated below BBB- by S&P Global Ratings or Fitch.

Senior and Subordinate

The first thing Sky and Spark plan to do is to repack the debt backing the USDS stablecoin.

Users of Sky can mint USDS by depositing crypto assets such as Ethereum and stablecoins into Sky Vaults, which then earns yields on these deposits. Users can then exchange USDS for sUSDS, the yielding version of the token, through Spark. Users cannot mint USDS that exceeds the value of their collateral, meaning the loans are over-collateralized.

"There will be USDS, and there may be some degree of exposure to high-yield products, but it will be packaged in a way that rating agencies are satisfied with the exposure," MacPherson said.

Meanwhile, Spark plans to isolate higher-risk, higher-yielding assets into a junior risk capital vault in the second quarter.

"This will be a first-loss type of vault. The risks are higher, but the returns will also be higher," MacPherson said.

Such structured financial products are common in traditional financial markets.

When borrowers repay their debts, lenders holding so-called senior products receive payments first, but typically with lower returns. This makes the product lower risk and favors conservative investors.

On the other hand, subordinate products are riskier because they receive payments last but offer higher yields to compensate for potential losses.

Additionally, MacPherson noted that Sky and Spark have already minimized exposure to USDe, a synthetic dollar issued by Ethena, another DeFi protocol.

S&P Global Ratings previously assigned a risk weight of 1250% to USDe in its assessment of Sky due to the complex mechanisms used to maintain the asset's value.

Rating Competition

Sky is not the only crypto project paying for a credit rating.

In 2022, the institutional division of the DeFi lending institution Compound Finance, Compound Prime, also received a B- rating for its senior unsecured debt from S&P Global Ratings.

In addition to traditional rating agencies like S&P Global Ratings, Moody's Ratings, and Fitch Ratings, several crypto-native rating agencies are also emerging.

Platforms like Credora provide credit analysis and risk assessment for DeFi lending, although the ratings they offer do not yet carry the same weight among investors as traditional agencies.

As of March 2026, Spark's stUSDS Vault has received a B+ rating, equivalent to BB- from traditional rating agencies.

Obtaining these ratings is "very important" for DeFi protocols, MacPherson said.

"There are a lot of questionable underwritings happening now, and there is indeed a need to scrutinize the main vault lending markets," he said.

Update, April 9: This article has been updated to distinguish between references to Sky and the Sky subDAO Spark.