What is USDS?
USDS is a dollar stablecoin issued by the Sky Protocol, the system formerly known as MakerDAO. It launched in 2024 as an upgraded version of DAI and converts with DAI one-for-one. Instead of a company holding bank reserves, a smart-contract system backs it with crypto collateral, other stablecoins and tokenized real-world assets, governed by SKY token holders.
Utility Lens
What USDS actually does
Offers an on-chain dollar issued by a protocol rather than a company, with an optional savings rate.
- Real-world usage
- growingUSDS is widely used in DeFi and savings products, building on DAI's long-running user base.
- Token necessity
- essentialThe token is the product; it is the dollar unit the protocol issues.
- Decentralization
- limitedSmart contracts and token votes run the system, but much of the backing is centralized stablecoins and tokenized funds, and governance has an upgrade path over the contracts.
- Track record
- developingUSDS launched in 2024, though it runs on the collateral system DAI has used since 2017.
What it’s used for
People deposit USDS into the Sky Savings Rate to receive sUSDS, which grows in value as protocol surplus is paid out. It is also used as a trading pair and collateral across DeFi apps, and Sky's affiliated 'Agents' deploy it into lending markets and tokenized funds.
Role of the USDS token:
Evidence of real use
- MakerDAO rebranded to Sky in August 2024, letting DAI holders upgrade to USDS one-for-one. Source
- The Sky Savings Rate is a variable rate funded from aggregate protocol surplus and paid to sUSDS holders. Source
- As of September 1, 2026, Sky Agents held tokenized-fund positions with managers including Janus Henderson and BlackRock. Source
How USDS works
USDS is created when value enters the Sky system. Users can lock crypto collateral in a vault and borrow newly minted USDS against it, paying a stability fee, and must keep more collateral than they borrow or risk liquidation. Stablecoins can also be swapped into USDS through a converter module. DAI and USDS share the same underlying balance sheet, and either can be converted into the other at a fixed one-to-one rate with no fee.
Over time the protocol has shifted much of its backing toward assets that earn yield, such as other stablecoins and tokenized Treasury and credit funds deployed by Sky 'Agents' like Spark and Grove. That income pays for the Sky Savings Rate. There is no bank-style attestation; instead, positions are visible on-chain and Sky publishes financial updates, so checking the backing requires reading those dashboards and reports.
No company stands ready to redeem USDS for bank dollars. Holders exit by selling it on a market or swapping it for another stablecoin through the protocol's converter, which depends on that module holding enough liquidity. In the US, Sky is not a licensed stablecoin issuer, and how the GENIUS Act will treat protocol-issued stablecoins like USDS is not settled as of October 2026.
Key moments
- 2017MakerDAO launches DAI, the predecessor whose collateral system USDS still uses.
- 2024MakerDAO rebrands as Sky in August and introduces USDS with one-to-one DAI conversion and the Sky Savings Rate.
- 2025Governance makes SKY the sole governance token, completing the move away from MKR.
- 2026Sky Agents expand holdings of tokenized funds from managers such as BlackRock and Janus Henderson.
Supply
USDS has no fixed cap. Supply grows when users borrow against collateral or swap other stablecoins in, and shrinks when loans are repaid or tokens are converted out. DAI can be upgraded into USDS at any time, which also adds to USDS supply.
Risks to understand
- Collateral risk: a large share of backing is centralized stablecoins and tokenized funds, so problems at those issuers or managers could flow through to USDS.
- Smart-contract and governance risk: bugs or poor governance decisions could weaken the system, and governance can change parameters and contracts.
- Exit liquidity: there is no company redemption, so holding $1 depends on market liquidity and the converter module.
- US regulatory uncertainty: The GENIUS Act, signed in July 2025, is expected to take effect on January 18, 2027. As of October 2026, Treasury, the OCC and the Federal Reserve had published proposed implementing rules, but final rules were still pending. Sky is not a licensed issuer, and the treatment of protocol-issued stablecoins under the new rules is unclear.
- Savings rate changes: the Sky Savings Rate is variable and can fall at any time.
USDS FAQ
What is the difference between DAI and USDS?
They are two tokens on the same Sky balance sheet and can be swapped one-to-one. USDS is the newer version and is the one tied to the Sky Savings Rate; DAI still circulates for compatibility.
Who backs USDS?
No single company. The Sky Protocol backs it with crypto collateral, other stablecoins and tokenized real-world assets, and SKY holders vote on how it is managed.
Can I redeem USDS for dollars at a bank?
No. You exit by selling USDS on an exchange or converting it to another stablecoin through the protocol.
Is USDS regulated in the US?
Not as a licensed stablecoin as of October 2026. The GENIUS Act's rules for payment stablecoins are still being finalized.
Sources
- MakerDAO rebrands to Sky, DAI stablecoin optionally upgradeable to USDS — The Block
- Sky.money — Sky
- Sky Ecosystem: August Financial & Operational Update — Sky Ecosystem
- DAI vs USDS: what's the difference? — MetaMask
- MKR to SKY Upgrade — Sky Ecosystem
- Treasury Seeks Public Comment on GENIUS Act Proposed Rulemaking — U.S. Department of the Treasury
Last reviewed October 4, 2026 by The Crypto Guide editorial team. Utility Lens ratings are editorial judgments, not investment advice. Market data from CoinGecko. Spot an error? Request a correction.