stUSDS

The Sky ecosystem has introduced stUSDS, a new risk capital token designed for more expert users who wish to provide specialised liquidity for SKY-backed borrowing operations. This token represents a fundamental component of the Sky lending infrastructure, creating an isolated capital pool that funds leverage activities within the ecosystem.

Core Function

stUSDS serves as the dedicated lending capital for the SKY Staking leverage system. Users deposit USDS into the stUSDS contract and receive stUSDS tokens representing their proportional claims on the segregated risk capital pool. This capital exclusively funds borrowing operations where users borrow USDS against their staked SKY tokens.

The segregation principle ensures that risks associated with SKY-backed lending remain contained within the stUSDS capital structure. Each stUSDS token holder participates in the yields generated from lending operations while accepting the specific risks tied to this lending activity.

The stUSDS Rate Formula

The returns earned by stUSDS holders follow a dynamic calculation that adjusts based on how capital is deployed:

stUSDS Rate = Utilization × (SKY Borrow Rate - stUSDS Accessibility Reward) + (1 - Utilization) × Sky Savings Rate

This formula distributes returns between two states of capital deployment. When funds are actively lent out, depositors earn the SKY Borrow Rate minus the stUSDS Accessibility Reward. When funds sit unutilized in the contract, they earn the Sky Savings Rate. The weighted combination ensures depositors always receive competitive returns on their entire balance.

Understanding Utilisation

Utilisation measures the percentage of stUSDS capital currently deployed in active loans. The system targets a 90% utilisation rate, maintaining most capital in productive lending while preserving sufficient liquidity for withdrawals.

The SKY Borrow Rate adjusts dynamically to maintain this target. When utilisation drops below 90%, the borrow rate gradually decreases, making loans more attractive and encouraging increased capital deployment. When utilisation rises above 90%, the rate increases to moderate borrowing demand and preserve withdrawal capacity.

This self-regulating mechanism creates equilibrium between lending supply and borrowing demand through market forces rather than manual adjustments.

The Accessibility Reward Structure

The stUSDS Accessibility Reward compensates ecosystem participants who drive adoption and usage. Currently set at 0.1% total, this reward splits between two categories:

• Integrator Portion: 0.05% for platforms and applications that incorporate stUSDS functionality
• Star Management Fees: 0.05% for entities that facilitate user access to Sky ecosystem products

These rewards are deducted from the SKY Borrow Rate before calculating stUSDS holder returns, meaning borrowers bear the cost of ecosystem growth incentives.

Dynamic Borrowing Capacity

The stUSDS contract rather than setting static debt ceilings through governance, uses a simple rule:

Maximum borrowable USDS = Total USDS currently held in the stUSDS contract

This one-to-one relationship means borrowing capacity scales automatically with available liquidity. When depositors add USDS to the stUSDS contract, borrowing capacity immediately expands. When deposits decline, capacity contracts proportionally.

This dynamic mechanism ensures the system maintains full backing. Borrowed amounts can never exceed deposits, eliminating the need for governance interventions to adjust debt ceilings and creating inherent protection against over-leverage.

Liquidity Mechanics

Converting stUSDS back to USDS requires available unutilised liquidity in the stUSDS converter contract. Since the system targets 90% utilisation, only approximately 10% of capital remains immediately accessible for withdrawals at equilibrium.

During high-utilisation periods, depositors seeking to exit must wait for:

• Borrowers to repay outstanding loans
• New deposits to provide additional liquidity
• The dynamic rate mechanism to attract capital and encourage repayments

This liquidity structure means stUSDS functions best for users who can accept variable withdrawal timelines based on system utilisation levels.

Risk Profile

stUSDS carries a distinct risk profile that reflects its role as risk capital:

Utilisation Risk: High utilisation periods limit immediate withdrawal capacity, requiring depositors to time exits carefully or wait for liquidity to become available.

Collateral Exposure: The capital funds loans backed by staked SKY tokens, creating exposure to SKY price movements and liquidation mechanics.

Smart Contract Risk: Like most DeFi primitives the system relies on multiple interconnected contracts managing deposits, loans, conversions, and rate calculations.

Capital Segregation: While segregation protects the broader Sky ecosystem, it also means stUSDS holders bear concentrated exposure to SKY-backed lending performance.

The higher yields offered by stUSDS compensate depositors for accepting these risk characteristics while providing essential liquidity for ecosystem leverage capabilities.

Target User Profile

stUSDS is designed for more expert users who possess:

• Understanding of lending mechanics and yield generation
• Ability to evaluate a range of idiosyncratic risks
• Liquidity flexibility to accept potentially delayed withdrawals
• Comfort with concentrated exposure to specific lending operations
• Interest in earning premium yields with an elevated risk profile

The token specifically serves users who wish to provide specialised capital to the Sky ecosystem rather than participants seeking simple savings products.

Economic Role Within Sky

stUSDS enables the SKY Staking leverage system by ensuring this functionality receives dedicated, appropriately compensated capital. The segregated structure allows SKY holders to access liquidity without requiring the entire Sky ecosystem to share in the associated risks.

The dynamic rate mechanism automatically balances lending supply against borrowing demand, scaling the system based on actual market conditions. The accessibility reward structure aligns incentives across Stars and Integrators, encouraging growth while maintaining sustainability.

Through these mechanisms, stUSDS creates resilient lending infrastructure that supports Sky ecosystem expansion while appropriately compensating the users who provide essential liquidity for leverage operations.