Sky's Dual Transformation: Governance Upgrade and On-Chain Institutional Infrastructure

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Author: Jae, PANews

While leading DeFi lending platform Aave is deeply embroiled in the Kelp DAO theft incident, another veteran protocol Sky has not only attracted serious attention from whales with real capital, with TVL soaring over 25% in the past two weeks, but also seized the momentum by launching two major initiatives aimed at paving the way for its institutionalized strategy through governance reforms:

Internally, the protocol proposed to simplify treasury management mechanisms, shifting expenditure from manual governance voting to strict rule-based constraints;

Externally, it is building Laniakea, an on-chain capital allocation infrastructure for institutions, attempting to absorb the liquidity cake of 300 billion idle stablecoins.

Sky is accelerating to carve out its niche in the new DeFi infrastructure ecosystem.

From “Human Governance” to “Rule of Law”

On April 25, Sky founder Rune Christensen announced on the governance forum that the transfer of assets from Genesis Capital to Grove has been completed, marking the official end of the protocol’s Genesis phase.

During the Genesis phase, Sky relied on human-driven governance decisions: community votes determined expenditures and discretionary fund allocations, providing enough flexibility for early ecosystem expansion. But as assets surpassed hundreds of billions of dollars, the associated uncertainties and high governance costs gradually became a bottleneck for protocol credibility.

The most direct signal is that S&P Global has rated Sky’s credit at B-. S&P explicitly pointed out the core issues: uncontrollable governance risks and opaque capital positions.

For a protocol bearing the credit of hundreds of billions in stablecoins, governance uncertainty itself is a significant systemic risk.

In response, Sky’s solution is to streamline and reconstruct treasury management functions (TMF). The protocol reduced the complex five-step waterfall structure to a fixed four-step framework.

The key constraint is a hard cap on operational expenses. Sky shifted from human governance to rule of law, locking treasury powers into code.

In the old system, community discretion on Step 1 was as high as 21% during Genesis; post-Genesis, it was set to a range of 4-10%.

However, if the ratio is floating, each adjustment requires complex governance votes.

Therefore, the new proposal directly overruled the old system, locking expenditure ratios permanently at 20%. This significantly reduces governance friction, and at least 80% of the protocol’s net revenue will remain within the system for reserves, token burns, or distribution to holders.

For SKY holders and ecosystem partners, a fixed expenditure ratio offers more predictability than highly uncertain governance decisions. The rigid 20% expenditure makes treasury cash flows more transparent and less susceptible to governance manipulation.

In essence, although Sky has proactively shrunk governance rights, it also presents a “certainty” pledge.

Building an Institutional-Grade On-Chain Capital Operation System

While internal constitutional reforms are underway, Sky is also opening its doors externally.

On April 28, Sky announced the development of Laniakea, a standardized infrastructure framework for institutional capital deployment, designed for its Sky Agent Network, aiming to address the idle funds of over 300 billion dollars in the stablecoin market.

It’s important to note that this Agent is not the usual AI Agent. Sky Agent refers to Capital Agents, not AI Agents.

The Sky team believes that the long-standing hesitation of institutional funds to deploy capital stems from five missing elements: shared infrastructure, standardized smart contracts, risk assessment, data systems, and legal frameworks.

Laniakea aims to bridge these gaps through standardization across four dimensions:

Smart Contract Standardization: templated deployment to eliminate repeated development costs for institutions;

Risk Management Standardization: unified risk measurement and loss-sharing hierarchy;

Data Infrastructure Standardization: protocol code stored in machine-readable formats to support AI real-time risk control;

Legal Compliance Standardization: providing pluggable identity and KYC registration systems, shared legal frameworks across product series, and establishing collateral-backed accountability mechanisms at each operational level.

Under the Laniakea architecture, Sky will evolve from a “lender” into a platform of a capital agent network.

Primes: the first-tier agents (Sky Agents), akin to on-chain fund managers, competing for capital allocation quotas, developing investment strategies based on Laniakea’s unified standards, such as Spark for DeFi lending and Grove for private credit and RWA;

Halos: specific financial products incubated by Primes using Laniakea’s shared infrastructure, covering a range from government bond RWAs to private credit.

This layered architecture allows Sky to maintain a unified framework while integrating different agents’ expertise for diversified asset allocation, greatly enhancing ecosystem scalability.

In other words, based on Laniakea, Sky’s role shifts from a “direct operator” to an on-chain standardized operating system prepared for institutional capital.

PANews believes that the protocol’s main revenue will come from stability fees, interest spreads, and taxes.

Stability fees are Sky’s most traditional and stable profit model. As long as Primes manage Halos that want to serve as collateral to mint USDS within Sky, they need to pay interest—i.e., stability fees. Laniakea lowers the entry barrier for institutions, meaning more assets will flow into the system. As the total USDS minted increases, the protocol’s total stability fee income will grow accordingly.

Primes, as professional asset managers, are responsible for bringing yield strategies into Sky. The protocol provides liquidity for assets at a lower cost using USDS. Sky earns the net interest spread between “strategy yield” and “USDS funding costs” (such as deposit rates). The standardization of Laniakea allows Sky to manage hundreds of interest spread channels simultaneously, achieving scale effects.

Each independent Prime essentially functions as a “franchise” of Sky. Typically, Primes issue their own tokens, a portion of which or their revenue must be paid to Sky. Even if the protocol does not directly issue a specific product, as long as Primes are based on Laniakea to issue Halos, Sky can collect taxes and generate revenue.

It’s worth noting that because the protocol state is machine-readable, AI will take on functions like capital allocation and liquidation management.

By reading Laniakea’s standardized data interfaces, AI can monitor cross-asset exposure, collateral quality, and liquidity depth in real time. When risks such as abnormal interest spreads in underlying collateral arise, AI can automatically adjust credit limits or liquidation thresholds for relevant Halos based on preset “machine rules,” providing algorithmic-level capital safety for institutions.

Furthermore, the machine-readable format also makes Halos “standardized Lego blocks” that can be fine-tuned by AI models. AI can dynamically switch capital allocation across different risk tiers based on market rates and volatility, seeking optimal Sharpe ratios.

Overall, Laniakea’s AI compatibility will empower institutional capital and Primes in risk management and investment decision-making.

Positioning Infrastructure Layer, but Transformation Contains Three Hidden Risks

Sky’s two initiatives are not isolated; they form a coordinated strategy. The rule-based treasury management provides governance certainty for institutional capital, while Laniakea offers technical certainty.

Sky’s moves also reflect a broader logical shift in the DeFi market: from “front-end” application competition to “back-end” infrastructure competition.

The development path of DeFi lending protocols is evolving from single liquidity pools toward layered architectures. The launch of Laniakea is essentially Sky’s move to seize the infrastructure ecosystem niche. Once Laniakea becomes the preferred gateway for 300 billion idle stablecoins, Sky will upgrade to a central node for on-chain capital deployment.

However, caution is warranted, as Sky’s transformation is not without risks:

Secondary governance battles: Although expenditure ratios are locked, the authority to modify “rules themselves” remains in governance votes. If governance is attacked, the long-term validity of the rules could be questioned;

Technical complexity: Building machine-readable infrastructure supporting AI real-time monitoring is highly challenging. Any vulnerabilities could be magnified at scale;

Agent delegation risks: Primes hold large capital allocation powers, and despite loss accountability mechanisms, in extreme cases, conflicts of interest between agents and protocols could face legal and technical challenges.

From a stablecoin issuer to building an on-chain capital hub, Laniakea, Sky is about to complete a transformation from a single DeFi protocol to an institutional-grade operating system.

As institutional capital flows in along standardized interfaces, Sky will embark on a new chapter.