DAI & USDS Explained: Sky’s Decentralized Stablecoin

If you’ve spent any time in DeFi, you’ve almost certainly encountered DAI. For years it was the go-to decentralized stablecoin — soft-pegged to the US dollar, backed by crypto collateral, and governed by MakerDAO’s token holders. In late 2024, MakerDAO rebranded to Sky Protocol and introduced USDS as DAI’s upgraded successor. The two stablecoins now coexist: existing DAI remains fully valid, while new users are encouraged to mint or upgrade to USDS. Understanding both — and the transition between them — is essential for anyone navigating DeFi in 2026.

What Is DAI? The Original Decentralized Stablecoin

DAI launched in 2017 as MakerDAO’s flagship product. Unlike centralized stablecoins (USDT, USDC) that are backed by fiat held in a bank, DAI is generated by locking crypto assets — primarily ETH and other approved collateral — into smart contracts called Collateralized Debt Positions (CDPs), or more formally, Maker Vaults.

How the Peg Works

DAI maintains its $1 peg through a combination of over-collateralization and algorithmic stability mechanisms:

• Over-collateralization: To mint 100 DAI, you must lock more than $100 worth of collateral (typically 150% or more). This buffer protects against price drops.
• Liquidation: If your collateral value falls below the required ratio, your vault is automatically liquidated to repay the DAI debt, protecting the system’s solvency.
• Stability Fee: An interest rate charged on minted DAI, which the protocol uses to manage supply and demand for price stability.
• DAI Savings Rate (DSR): A yield offered to DAI holders who lock into the protocol’s savings contract, adjusting supply by incentivizing holding vs. spending.

The MakerDAO → Sky Protocol Rebrand

In late 2024, MakerDAO completed a significant rebrand, renaming itself Sky Protocol. Along with the new name came USDS — an upgraded stablecoin intended to replace DAI over time — and the SKY governance token, which is replacing MKR at a rate of 1 MKR = 24,000 SKY.

What Changed with USDS?

USDS carries the same core mechanics as DAI — collateral-backed, decentralized, and governance-controlled — with several additions:

• Sky Savings Rate (SSR): USDS holders can deposit into sUSDS to earn a native yield (currently around 4% APY), similar to the DAI Savings Rate but with a cleaner user experience via sky.money.
• Enhanced governance integration: USDS more tightly integrates with the SKY token governance ecosystem.
• Broader distribution: Sky has partnered with Robinhood and Coinbase to expand USDS access to a mainstream retail audience.

Current Status: USDS Dominance Growing

The migration from DAI to USDS has been proceeding steadily. As of early March 2026, the combined USDS + legacy DAI supply crossed $11 billion, with USDS accounting for 63% of that total (~$6.9B USDS) and legacy DAI making up the remaining 37% (~$4.07B). Sky Protocol’s overall TVL has reached approximately $21 billion ecosystem-wide.

Additional metrics highlighting Sky’s momentum:

• Sky Savings Rate (SSR) TVL: ~$6 billion locked in sUSDS earning yield
• SKY token buybacks: over $114 million spent on buybacks, retiring 1.83 billion SKY tokens
• Sky Savings Rate: currently 4% APY

How to Use DAI and USDS

Both tokens are widely supported across DeFi and are increasingly accepted in mainstream finance contexts. Here are the most common use cases:

DeFi Lending and Borrowing

DAI and USDS are accepted as collateral on virtually every major DeFi lending protocol — Aave, Compound, Spark (Sky’s own lending front-end), and others. You can borrow against your stablecoins or use them to provide liquidity for yield.

Yield Generation via sUSDS

Depositing USDS into the Sky Savings Rate module gives you sUSDS, which automatically accrues yield at the SSR (currently 4%). This is the simplest way to put idle stablecoins to work within the Sky ecosystem.

Payments and Transfers

Both tokens function as digital dollars for everyday crypto transactions — paying for services, settling trades on DEXs, or as a stable store of value during market volatility.

DAI/USDS vs. Other Decentralized Stablecoins

Risks and Considerations

DAI/USDS has one of the longest track records in DeFi, but risks remain:

• Collateral risk: If crypto collateral crashes rapidly, under-collateralized vaults may not be liquidated fast enough to protect the peg. The protocol manages this with conservative collateralization ratios and diverse collateral types.
• Governance risk: Protocol parameters — including collateral types, stability fees, and the SSR — are controlled by SKY token governance. A malicious or poorly coordinated governance vote could theoretically harm the protocol.
• Real-world asset (RWA) exposure: Sky Protocol has diversified into US Treasury bills and other RWAs as collateral, which introduces traditional finance counterparty risk.
• Complexity: The DAI/USDS transition adds complexity that could confuse less experienced users. Always verify you’re interacting with the correct token at the correct address.

Final Thoughts

DAI built the template for decentralized stablecoins, and USDS is carrying that legacy forward with a cleaner user experience and native yield built in. The Sky Protocol rebrand represents a maturing protocol expanding its ambitions — from DeFi primitive to mainstream financial infrastructure, with Robinhood and Coinbase integrations signaling serious institutional distribution intent.

For DeFi users, both DAI and USDS remain among the most reliable decentralized dollar alternatives available. If you’re currently holding DAI and want to earn yield, upgrading to USDS and depositing into sUSDS for the 4% Sky Savings Rate is worth exploring. As always, understand the underlying mechanics and risks before deploying significant capital.