When the first DeFi protocol in Ethereum's history started to be attacked online

Author: shushu, BlockBeats

On August 27, the lending protocol MakerDAO announced its rebranding to Sky and launched its native governance token SKY, which serves as an upgraded version of the Maker (MKR) token for a broader Sky ecosystem. On September 18, it will rename its decentralized stablecoin DAI to USDS.

The existing DAI stablecoin and MKR governance token will continue to exist, and users can voluntarily upgrade their tokens to USDS and SKY. Each MKR token can be upgraded to 24,000 SKY tokens, while DAI will be converted to USDS on a 1:1 basis.

Maker also plans to revamp its upcoming subDAO ecosystem "Sky Stars," which consists of independent decentralized projects that have their own business models, tokens, governance, and treasuries. Users will be able to use USDS to farm tokens issued by Stars. The first Sky Star to launch is the lending protocol Spark Protocol, which currently has a TVL of over $3 billion.

Last night, after MakerDAO officially announced its rebranding to Sky Protocol, the original official Twitter account @MakerDAO was promptly deactivated. Meanwhile, an employee from the Chinese media @Foresight_News registered that handle, a move that prevents the well-known handle MakerDAO from being exploited by malicious actors to create fake project accounts. Currently, when searching for "makerdao" on Twitter, regardless of whether one follows it or not, the first project displayed is still Sky.

From MakerDAO to Sky, the rebranding of the first DeFi protocol in Ethereum's history has not received unanimous support and understanding from the community. Concerns range from damage to brand recognition to token value dilution, and even to the perception that the Maker protocol is no longer decentralized. Since MakerDAO announced its "Endgame," every upgrade of the protocol has drawn market attention. After the split expectations were officially realized, community users began to question whether MakerDAO remains decentralized. How Maker's Endgame journey will affect its core users' choices, the project's value proposition, and future expectations is also a matter that requires ongoing attention.

Asset Changes: Is MKR Being Diluted?

This update involves various asset changes, primarily that each MKR token will convert into 24,000 SKY tokens, a decision seen as a stock split for MakerDAO. Currently, one MKR token is priced at $1,923, and after the split, one SKY will be valued at $0.08, leaving some room for speculation on the new token's price performance.

As mentioned earlier, the new protocol Sky will also launch a subDAO ecosystem called "Sky Stars," which can autonomously issue governance tokens, manage their treasuries and communities, and independently implement DAO-specific decisions. However, this move has raised concerns among users that the new tokens may dilute the value of the original protocol's tokens.

The official statement indicates that Sky Stars aims to innovate, experiment, and take on more risks, while Sky Protocol itself can continue to focus purely on maintaining the value and security of the USDS stablecoin. "Sky governance mitigates tail risks, while Stars focuses on conducting business in the trenches."

Although this idea aims to decentralize and distribute governance among various SubDAOs, the absolute number of new governance tokens introduced may lead to significant dilution of MKR's value. Each SubDAO has its own token, which could dilute MKR's value and attention. This dilution could not only harm MKR's value but also complicate the governance structure, making it less clear who holds true decision-making power.

Currently, the first sub-ecosystem, the Spark Protocol, has gone live and will introduce the Spark governance token SPK.

Is Decentralization Dead?

The most controversial aspect of this rebranding is the conversion of MakerDAO's original decentralized stablecoin DAI to USDS on a 1:1 basis, with the upgraded USDS potentially featuring freezing capabilities, which may be restricted in certain countries and regions (including the U.S. and the U.K.) as well as for VPN users.

The official announcement from Maker did not mention the freezing feature. According to blockchain media Wu Blockchain, Sam MacPherson, CEO of Phoenix Labs and Spark Protocol, confirmed that USDS will have freezing capabilities, but he later deleted the related tweet.

MakerDAO founder Rune responded that "this statement is somewhat misleading because DAI will continue to operate as it always has and will still be usable. Upgrading to USDS is optional, and only USDS will have the freezing feature. DAI is an immutable smart contract and cannot be modified." In another post asking about the freezing feature, Rune stated, "It (freezing) is ultimately controlled through a decentralized governance mechanism."

Last Network CEO androolloyd.eth stated, "Technically, it does have an authorization mechanism, but currently, it only checks the permissions for minting DAI. The transfer function has not been enabled, but it is upgradable, so it can essentially be reviewed based on governance's will."

Centralized stablecoins like USDC and USDT have censorship and freezing capabilities on some chains, and USDS may adopt this approach to comply with regulatory requirements and have the ability to blacklist holders. However, this decision has undermined the confidence of many community users.

Crypto KOL laurence bluntly stated, "Olympus has fallen," meaning something once powerful or unshakeable has been defeated or lost control. Community users commented, "A stablecoin with freezing capabilities is like a drug-addicted squirrel teetering on a tightrope; it’s hardly stable. All DAI holders have unknowingly become testers for a CBDC. Hope you enjoy this digital prison created by those who have always messed up traditional finance."

Synthetix member MilliΞ commented, "I think Maker will gradually become irrelevant from here. As a DeFi native, I can't express how pessimistic and poorly thought out this roadmap is. By the time these plans are actually implemented, DAI will lose all its moats and be completely replaced by more reliable alternatives (in this case, even something like USDC is better)."

Curve Finance commented that (Maker's move) may just be an attempt to compete with USDC and USDT.

Will DAI Lose Its Moat Because of This?

In MilliΞ's view, "DAI's prosperity to this day is entirely due to the substantial subsidies provided by Curve holders to the 3pool, giving it a strong liquidity moat. Without the 3pool, DAI's supply could not possibly exceed $1 billion."

Due to subsidies from Yearn and Curve, DAI's price once exceeded its peg, prompting Maker to introduce the Peg Stability Module (PSM), which provides a way to meet DAI's supply demand without requiring users to over-collateralize their loans. Currently, USDC is the largest PSM Maker treasury, along with others like USDP and GUSD. Maker's PSM once backed over 50% of DAI's supply, and as DAI became increasingly reliant on PSM, the community criticized that over-reliance would make DAI a proxy for centralized stablecoins.

However, as DeFi project subsidies decrease, and even Curve has launched its own stablecoin crvUSD to join the competition, Maker has had to seek new sources of income. Maker began to pivot towards RWA, and when the Federal Reserve started raising interest rates, MakerDAO moved PSM funds on-chain to earn yields. This strategy significantly increased Maker's revenue, but with the Federal Reserve's expectations of rate cuts growing stronger, this situation may not last.

Currently, the vast majority of MakerDAO's revenue comes from RWA. The aforementioned sub-DAOs are responsible for innovation, experimentation, and taking on more risks, while Sky itself focuses on maintaining the value and security of the USDS stablecoin, resembling a separation of Maker's on-chain and off-chain operations.

DAI's dominance largely relies on its leading position in liquidity pools and its decentralized competitive advantage compared to other stablecoins. However, as DeFi project subsidies disappear and competitors catch up, DAI's market share in decentralized stablecoins may be eroded. The competitiveness of centralized stablecoins is also continuously improving, and Maker's upgrade of DAI to USDS, which includes freezing capabilities, means that DAI as a decentralized stablecoin will lose its appeal, and its main business will shift more thoroughly towards RWA.

The pivot towards RWA and the addition of freezing capabilities is an inevitable business decision. Notable KOL and CEHV partner Adam Cochran analyzed that if Maker wants Treasury yields as support, even through secondary Treasury bond trading, it must have freezing capabilities and VPN region blocking features. This is a trade-off that the industry must make, as you cannot enjoy the benefits of the U.S. traditional financial system without adhering to its rules. "You either choose decentralization and operate independently, or accept the constraints of the Treasury to gain their 'carrots.'"

Crypto investor Ericuuuh believes, "In contrast, introducing an independent function at the stablecoin level to isolate potential problematic funds is far better than having part of your supporting assets frozen by the Department of Justice, leading to a technical inability to support." This is also the significance of Rune's statement about controlling the freezing feature through a decentralized governance mechanism.

MakerDAO's "Endgame" plan was originally designed to address the key opportunities and challenges facing the blockchain industry by establishing a resilient and reliable governance balance to make Maker governance more efficient, transparent, and inclusive. However, the current situation seems to have turned into a collective complaint from community users, who feel that Maker is becoming increasingly centralized and opaque.

But we need to realize that as RWA business becomes the core source of Maker's revenue, it will require more mechanism adjustments to sustain high yields. This also reminds us that any growth in the adoption of RWA assets may weaken the underlying protocol's decentralization and censorship resistance.