Staked USDS

stUSDS (Staked USDS) is a vault offered by Sky that lends deposited USDS exclusively to borrowers who use SKY tokens as collateral in the Sky Lockstake Engine. In exchange for providing this specialized lending capital, users earn the stUSDS Rate.

What is stUSDS?

stUSDS (Staked USDS) allows USDS holders to stake their tokens by depositing them into a lending pool that exclusively provides liquidity to borrowers using SKY tokens as collateral through Sky's Lockstake Engine. In return, stakers earn the stUSDS Rate, which is derived from the interest paid by borrowers. The stUSDS token is an accumulating token, meaning its value increases over time as interest accrues, rather than increasing the number of tokens you hold.

How do I stake USDS?

To stake USDS you can deposit stablecoins into stUSDS using the Spark App. See the Earning Savings for a guide on how to deposit.

How It Works

When you deposit USDS into stUSDS, your funds become available for borrowers to borrow at sky.money through the Lockstake Engine. These borrowers must deposit SKY tokens as collateral to receive USDS loans. The interest paid by borrowers flows to stUSDS holders as yield.

Dynamic Rate Mechanism

• Initial Phase (< 55M USDS deposits): Fixed at 40% APY to incentivize deposits during the temporary illiquidity period
• Post-Bootstrap (≥ 55M USDS deposits): Starts at 20% APY, then transitions to dynamic market-based rates

The SKY Borrow Rate (and therefore the stUSDS yield) automatically adjusts based on how much USDS is currently lent out:

• Target Utilization: The system targets 90% utilization of USDS in the stUSDS contract
• Below 90% utilization: The rate gradually decreases to encourage more borrowing
• Above 90% utilization: The rate gradually increases to reduce borrowing demand and encourage deposits

This means when liquidity is tight (high utilization), the APY increases to attract more deposits and discourage new loans. Conversely, when there's excess liquidity (low utilization), the APY decreases.

Token Mechanics

stUSDS is an accumulating token (not a rebasing token). This means the number of stUSDS tokens you hold stays the same, but each token becomes worth more USDS over time as interest accrues. Your USDS-denominated value gradually increases as the stUSDS Rate compounds your earnings.

Key Risks

No Automatic Liquidations

Unlike traditional lending markets, the stUSDS lending mechanism does not have automatic liquidations enabled. During the bootstrapping phase while SKY liquidity is limited, undercollateralized positions will be manually liquidated by Sky Governance to minimize market risk. This means:

1. Liquidity Constraints: If many users try to withdraw at the same time while most USDS is lent out, you may face delays in withdrawing your funds. The vault dynamically adjusts its rate upward during high utilization to incentivize new deposits and encourage loan repayments, but withdrawals depend on available liquidity returning to the pool.

2. Different Risk Profile: Because there are no automatic liquidations to protect against bad debt, stUSDS carries more risk than Savings Vaults or other lending products. Borrowers cannot be forced to automatically repay even if their collateral value declines.

3. Potential Losses (Haircuts): In the event that the liquidation of a borrower's staked SKY collateral does not cover the outstanding debt, stUSDS balances will be subject to a haircut proportional to the shortfall.

Bootstrapping Phase Risks

Temporary Withdrawal Constraints Below 55M USDS: During the initial bootstrapping phase before stUSDS reaches 55 million USDS in deposits:

• Withdrawals are only available once total deposits exceed 55 million USDS
• When utilization is above 100%, you cannot withdraw USDS from stUSDS.
• To compensate for this risk, the stUSDS rate is set at a temporary 40% APY during this phase
• Once 55 million USDS is reached, utilization will drop below 100%, enabling withdrawals, and the rate will decrease to 20% APY before transitioning to dynamic market-based rates

SKY Price Oracle Limitations

During the bootstrapping phase, the SKY Oracle price feed is capped at $0.04 USD to limit leverage while SKY liquidity is low. This means:

• Borrowers cannot increase their leverage even if SKY trades above $0.04.
• If SKY trades higher than the cap, the effective required collateralization ratio becomes more conservative, providing additional protection
• This protective measure reduces risk to stUSDS holders while SKY liquidity remains limited

Supported Networks and Token Addresses