Sky slashes buybacks 87% to boost stablecoin reserves ahead of ‘massive oil shock’

Sky, one of the largest DeFi protocols, has dramatically reduced its buyback programme in an effort to bolster its stablecoin’s reserves.

The digital cooperative that runs Sky voted on Thursday to reduce the buyback programme from $300,000 per day to $37,600 per day, an 87% reduction.

The reduction will last just three months. Sky founder Rune Christensen has suggested it is a necessary precaution due to the war in Iran.

“The world is about to experience a massive oil shock and a lot of financial infrastructure will break from this,” he wrote in the cooperative’s Discord server this week.

But critics say it was an overdue move, given the declining resources backing USDS and DAI, the two stablecoins issued by Sky, formerly known as Maker.

In recent weeks, the supply of USDS has surged, according to DefiLlama data. Over the past 30 days, it has grown more than 22%, to about $7.9 billion. DAI has grown almost 2% in that span, to $4.5 billion.

At the same time, Sky’s aggregate backstop capital — the surplus crypto meant to stabilise USDS and DAI in the event they become undercapitalised — has held flat, at about $50 million.

“This Sky Protocol governance proposal is part of a broader capital scaling strategy to build up the protocol’s backstop,” Sky wrote in a post on X this week.

“This adjustment would improve capital efficiency, preserve flexibility, and support the long-term strength of USDS and the wider Sky ecosystem.”

Buyback programmes have soared over the past year as DAOs — the digital cooperatives that manage major DeFi protocols — rush to juice the value of their languishing tokens.

So-called governance tokens grant membership in DAOs, empowering investors to propose and vote on changes to major decentralised financial protocols, such as Lido, Aave, and, of course, Sky.

But investors have shown little interest in running DeFi protocols. Votes often fail to reach quorum, even as DAOs functionally pay members to participate via token-based incentive programs.

Several DAOs established buyback programmes funded by protocol revenue. That, in theory, would tie the tokens’ value to the success of those protocols, some of which generate hundreds of millions of dollars in fees every year.

The practice has its critics, who say the money would be better spent on growth initiatives.

Still, Sky members stood by the buyback programme even as some warned the protocol’s backstop capital — also referred to as its surplus buffer — was hitting multi-year lows.

Last year, ratings agency S&P Global gave Sky a B- credit rating, putting USDS and DAI on par with government bonds from the Democratic Republic of the Congo. That was due, in part, to its low surplus buffer.

“We see Sky’s capital and earnings as a material ratings weakness given the protocol’s limited amount of surplus reserve buffer to cover potential credit losses on the assets and its weak earnings capacity,” S&P wrote in its assessment.

Since February 2025, Sky has used $300,000 in USDS every day to purchase SKY, the protocol’s governance token. It then distributes those tokens to SKY stakers. Staking is required to participate in Sky governance, meaning the buyback programme effectively serves to incentivise participation among the DAO’s members.

Those buybacks have cost Sky $116.6 million in USDS tokens since February 2025, according to data gathered by BlockAnalytica.

Pausing buybacks will allow Sky to replenish the buffer, proponents have said. And even if it failed to stabilise USDS and DAI, Sky has other mechanisms to ensure its stablecoins remain on-peg, according to Christensen.

Those include issuing and selling new SKY tokens and clawing back crypto used to capitalise Sky subsidiaries such as Spark, Christensen wrote last month. As of Thursday, Sky could claw back about $25 million in such crypto.

SKY has increased about 5% over the past week, to eight cents per token. Bitcoin and Ethereum are up 0.5% and 1.8% over that span, respectively.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. Have a tip? You can reach him at [email protected].