AL #77: Sky (Maker) on Solana isn't a Big Deal Yet
Not the Endgame we expected.
On Friday Rune Christensen stood up at the Solana Breakpoint conference and announced that Sky (previously MakerDAO) will be deploying on Solana.
This includes semi-native (canonically bridged through Wormhole) versions of the three primary tokenized vehicles of Sky:
USDS (previously DAI),
SKY (previously MKR),
sUSDS (USDS with SKY rewards).
This launch will be boosted with liquidity mining targeting integrating protocols like Jupiter and will (potentially) be followed up with “SkyLink”, a native deployment of Sky on Solana.
Here’s the tweet:
BTW, fun aside, apparently Solana Breakpoint rocked:
Three forms of cross-chain liquidity
An algorithmic stablecoin like USDS has three paths to deploy on other chains:
Use a default (canonical) bridge. This is something that protocols cannot opt-out of. For example the USDS version on mainnet can be bridged and used on Base using the canonical Optimism L1 to L2 bridge. There is no canonical bridge from Ethereum to Solana;
Deploy via another bridge. This is what Sky is proposing to start with through Wormhole. These deployments can vary from simply bridging the token to using bridging for underlying assets;
Build a native version of the protocol. This would mean supporting minting and burning of USDS natively on Solana. Native deployments may or may not have cross-chain liquidity layers for the underlying assets.
Sky is proposing to start with approach 2 and then migrate to approach 3.
The Solana stablecoin opportunity
After the rebrand and rebuild, Sky is in liquidity bootstrapping mode.
The Solana DeFi ecosystem has not only been growing fast, it also desperately needs higher quality sources of stablecoin yield.
This is how Rune explained it in the forum post:
What is currently missing, however, is exactly what USDS and Sky offers: A decentralized stablecoin that can access a native savings rate and token rewards, and eventually deploy large scale capital into high value opportunities in trusted Solana DeFi protocols.
But all signs point to this still being a small bet.
1. Wormhole is a proven and light way to bootstrap a native integration
Wormhole is chosen for its ability to carry out governance instructions and will be replaced by the SkyLink native deployment.
Lido, Jito and ether.fi have also integrated using Wormhole’s NTT.
Wormhole is fundamentally designed to provide crosschain governance control of the native tokens, allowing Sky Governance to later upgrade the initially deployed Solana Wormhole Tokens to fall under SkyLink control, which is an advanced and secure crosschain solution that leverages multiple crosschain networks simultaneously.
2. The comparative case studies are not that promising (yet)
Sky’s migration follows Ethena's, which used Layer0’s OFT to deploy USDe on Solana and Ondo’s.
Ondo maintains over $50M market cap on Solana according to DeFiLlama, however, it’s possible that Sky’s blue chip branding and incentives could help it get more TVL.
3. The investment is tiny
Ultimately, the approximately $130k worth of SKY incentives signal that this is not necessarily a major strategic priority and more of an opportunistic bet.
Rune had previously articulated that governance is the more significant challenge in DeFi and far outweighs the cost of developing protocol code:
Maker also is doing a DEX, lending and stablecoins. The reason why this is happening is because the real challenge all of this is not really building the actual products, it's having the governance layer in a DAO to maintain it all. So that's where all the complexity and investment goes: having the ability to make the decisions that maintain something like that. If you already have that capability for doing it with a stablecoin, then you've already paid the majority of the cost and it's very easy to add more features using the same governance rails.
While protocols have traditionally been sensitive to duplicating their codebases in alternative VMs, protocols with parallel governance, subDAOs or other models of dividing attention without losing efficiency could pull it off.
Ultimately, there’s a lot of flexibility here for Sky to delay or even cancel the fully native SkyLink integration and keep the sunk costs fairly low if adoption doesn't meet their expectations.
The community has been pretty quiet, considering that the proposal by Rune last year to explore a Solana app chain ended up being far more controversial (naturally).
However, looking at the Solana stablecoin landscape, there’s clearly room for an algorithmic stablecoin with built-in yield.
Whether the community agrees will be another question entirely.