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

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 significant whale attention 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 institutional strategy through governance reforms:

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

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

Sky is accelerating its position in the new DeFi infrastructure ecosystem.

From community “rule of man” 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 governance-driven decision-making: community votes determined expenditures and discretionary fund allocations, providing enough flexibility for early ecosystem expansion. However, as assets surpassed hundreds of billions of dollars, the associated uncertainties and high governance costs gradually became a constraint on the protocol’s creditworthiness.

The most direct signal is that S&P Global assigned Sky a credit rating of 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 constitutes a significant systemic risk.

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

The most important constraint is a hard cap on operational expenditures. Sky shifted from rule of man to rule of law, locking treasury authority within code.

In the old system, community discretion on Step 1 was as high as 21% during Genesis, with plans to set it between 4-10% post-Genesis.

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

Therefore, the new proposal directly overhauled 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

Internally, Sky is amending its constitution, while externally opening its doors.

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 mainly stems from the absence of five key elements: shared infrastructure, standardized smart contracts, risk assessment, data systems, and legal frameworks.

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

1. Smart contract standardization: templated deployment to save institutions from reinventing the wheel;

2. Risk governance standardization: unified risk measurement and loss sharing in order of priority;

3. Data infrastructure standardization: protocol code stored in machine-readable formats to support AI real-time risk control;

4. 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 no longer be just a “lender,” but a platform for a network of capital agents.

• Primes: the first-tier agents (Sky Agents), similar to on-chain fund managers, competing for capital allocation, developing investment strategies based on Laniakea 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 the expertise of different agents 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 tailored for institutional capital.

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

Stability fees are Sky’s most traditional and stable profit model. As long as the Halos managed by Primes want to use USDS as collateral to mint in Sky, they must pay interest—i.e., stability fees. Laniakea lowers the barrier for institutional access, meaning more institutional 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 will provide liquidity for assets at lower costs using USDS. Sky earns the net interest margin between “strategy yield minus USDS funding costs (like deposit rates).” The standardization of Laniakea allows Sky to manage hundreds of spread channels simultaneously, creating scale effects.

Each independent Prime essentially acts as a “franchise” of Sky. Typically, Primes issue their own tokens, a portion of which or a share of their revenue is paid to Sky. Even if the protocol does not directly participate in issuing a specific product, as long as Primes are based on Laniakea-issued 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 exposures, collateral quality, and liquidity depth in real time. When a risk signal such as abnormal interest spread appears in an underlying collateral, AI can automatically adjust the credit limits or liquidation thresholds of the relevant Halos based on preset “machine rules,” providing algorithmic-level capital safety for institutions.

Furthermore, machine readability also makes Halos “standardized Lego blocks” that can be fine-tuned by AI models. AI can automatically switch capital allocations 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 at the infrastructure layer, but transformation carries three hidden risks

Sky’s two initiatives are not isolated but part of a coordinated strategy. The rule-based treasury management provides governance certainty for institutional capital, while Laniakea offers technological certainty.

Sky’s moves also reflect a broader shift in DeFi: from “front-end” application layer competition to “back-end” infrastructure layer 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 capture the infrastructure ecosystem. Once Laniakea becomes the preferred gateway for 300 billion idle stablecoins, Sky will upgrade to a central node for on-chain capital deployment.

However, the path of Sky’s transformation is not without risks:

1. Governance power struggle: Although expenditure ratios are locked, the authority to modify “rules themselves” remains in governance votes. If governance attacks occur, the long-term validity of the rules may be questioned;

2. Increased technical complexity: Building machine-readable infrastructure supporting AI real-time monitoring is highly challenging. Any vulnerabilities could be amplified at scale;

3. Delegation risk of agents: 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 with Laniakea, Sky is about to complete a transformation from a single DeFi protocol to an institutional-grade operating system.

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