By Key Points
- Sky token upgrade replaces Maker token and launches staking rewards
- Sky proposes replacing Maker (MKR) with SKY as governance token
- Staking rewards for SKY holders to launch post-upgrade
- Penalties planned for MKR holders delaying the switch
- Liquidations temporarily paused during transition phase
Decentralized finance (DeFi) platform Sky is taking a bold step to finalize its transformation by ousting the Maker (MKR) token and fully adopting the Sky (SKY) token as its governance asset.
In a proposal submitted to the Sky DAO on May 1, Sky outlined plans to replace MKR with SKY between May 15 and May 19, completely ending the option to revert back to MKR.
Sky co-founder Rune Christensen hailed the proposal as a “huge milestone” and expressed strong support. He noted that allowing downgrades back to MKR had been a major obstacle, limiting exchange adoption of SKY.
“With this change, exchanges are likely to move faster in quickly adopting SKY without concerns about fracturing liquidity,” Christensen explained.
A new governance proposal has been submitted to finalize the upgrade from MKR to SKY.
It would enable SKY Staking, activating USDS rewards for SKY holders. If approved, this could be one of the final steps toward a transition to zero fixed costs by the end of 2025 directing… pic.twitter.com/aq9zm24b4H
— Sky (@SkyEcosystem) April 30, 2025
To encourage a timely transition, penalties will be applied to MKR holders who delay upgrading to SKY. Starting September 18, a 1% delayed upgrade penalty will kick in, increasing every three months. Users slow to switch will also receive fewer SKY tokens when they finally upgrade.
This type of bold move to streamline governance tokens is becoming a common trend among DeFi protocols, as platforms look to avoid liquidity fragmentation and enhance token utility—a strategy also seen in Base’s massive $710M liquidity lead over Arbitrum.
Sky community mulls final proposal to replace $MKR with $SKY as sole governance token, enabling staking and $USDS rewardshttps://t.co/NJ4tqsvx8m pic.twitter.com/CeneIPBnuz
— ICO Drops (@ICODrops) May 1, 2025
Staking and rewards take center stage in Sky token upgrade
The most anticipated feature of the Sky token upgrade is staking. Once the governance contract upgrade is completed, SKY holders will gain access to staking rewards.
Christensen revealed that staking rewards tied to Sky’s decentralized stablecoin, USDS, will launch two to three weeks after the governance upgrade. These rewards will use a 50% splitter rate, distributing protocol income directly to stakers.
Atlas Axis made a major proposal to Sky Governance which will finalize the upgrade from MKR to SKY and enable SKY Staking USDS Rewardshttps://t.co/FIPIjLk1N4
— Rune (@RuneKek) April 30, 2025
This shift will allow a larger share of Sky’s revenue to fund SKY buybacks and staking rewards, enhancing long-term value for SKY holders.
During the initial phase of the one-way MKR to SKY transition, Sky will pause liquidations to prevent risks from potential price manipulation involving MKR and SKY. Christensen assured that once SKY market liquidity stabilizes, liquidations will resume and risk parameters will be updated to long-term targets.
Sky’s rebranding journey has been eventful. After rebranding from Maker to Sky in August last year, the team faced community pushback. A poll in November, however, showed 79% of tokenholders favored keeping the Sky brand, solidifying the platform’s new identity.
The strategy is similar to how Alpaca’s market manipulation triggered a sudden price surge, leading to risk management changes—highlighting how DeFi platforms must adapt quickly to protect liquidity and user trust.
The Sky token upgrade reflects DeFi’s broader evolution
The Sky upgrade isn’t happening in isolation. It mirrors a broader DeFi evolution towards greater efficiency and clearer tokenomics. By enabling staking, discouraging delayed migration, and reducing fixed costs, Sky is positioning itself for long-term competitiveness.
This transition also aligns with the growing interest from venture capital in protocols that innovate token utility—a theme seen in the explosive VC interests shaping crypto’s 2025 comeback.
As Sky implements staking and governance upgrades, it joins a list of protocols aiming to offer stronger incentives for both users and liquidity providers, a key to surviving in an increasingly crowded DeFi market. These steps also resonate with moves by larger crypto entities like MicroStrategy’s bold strategy amid Q1 losses, where long-term positioning is prioritized over short-term challenges.
For Sky, this upgrade could be the final piece to unlock sustained growth and deeper community engagement in 2025 and beyond.
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