The DeFi protocol Sky reported a net loss of 5 million USD in the first quarter, as USDS interest payments wiped out profits.

PANews reported on May 14 that a report published by contributors from Steakhouse Financial’s Sky indicates that the DeFi protocol Sky (formerly MakerDAO) experienced a net loss of $5 million in the first quarter, a significant reversal from a profit of $31 million in the fourth quarter of last year. The main reason for the loss was a year-on-year surge of 102% in interest paid to stablecoin holders, directly related to its strategy to promote the new stablecoin USDS to replace DAI. Sky co-founder Rune Christensen confirmed that to attract capital inflow, the USDS savings interest rate had reached as high as 12.5% (which dropped to 4.5% in February), leading to a surge in interest expenses. Currently, the USDS interest rate is still higher than that of DAI, but blockchain research firm GFX Labs governance contact PaperImperium pointed out: “USDS has failed to create new demand; it merely shifted DAI holders, who were previously accepting zero interest, to higher interest products.” The launch of USDS is a core initiative of Sky’s “Final Plan”, aimed at creating a more compliant institutional-grade stablecoin. Although the total supply of USDS and DAI increased by 57% this quarter, this growth primarily came from the $450 million staked in the synthetic dollar protocol Ethena. It is noteworthy that Ethena has recently converted part of its reserves from USDS to the BlackRock-backed USDtb, which may alleviate Sky’s interest burden.