USDS (USDS)
SUMMARY
USDS (Sky Protocol) is deemed non-compliant because its core business model and native yield mechanisms are fundamentally reliant on interest-bearing activities (Riba). The protocol generates significant revenue from stability fees on collateralized loans and interest from traditional finance instruments like US Treasury bills, which directly fund the yield paid to USDS holders.
Shariah Component Breakdown
Shariah Analysis
business activity
FailedThe protocol's core business model relies heavily on charging interest (stability fees) on collateralized debt positions and earning interest from traditional finance instruments, confirming significant Riba and Haram industry exposure.
revenue purity
FailedThe protocol's revenue is heavily derived from non-compliant sources, specifically interest from crypto-backed loans and traditional finance instruments, with the Haram revenue share estimated at over 33 percent.
token utility
FailedWhile USDS functions as a medium of exchange, its native yield mechanism (Sky Savings Rate) is directly funded by interest generated from overcollateralized borrowing fees and Real World Asset (RWA) interest, making the yield source non-compliant.
Legitimacy & Security
project audits
PassedThe protocol has a proven track record with zero core exploits in seven years of operation, and security information is confirmed to be available.
social presence
PassedThe project demonstrates massive scale, manages billions in Total Value Locked (TVL), and has significant institutional adoption and visibility.
whitepaper
PassedThe project provides official documentation and tokenomics information via its developer portal.
Team & Ecosystem
team background
PassedThe team is public, featuring known figures like Rune Christensen, and has a long-standing, battle-tested history in the DeFi space as the evolution of MakerDAO.
Detailed Shariah Report
Overview
USDS is a stablecoin issued by the decentralized finance platform Sky Protocol, which represents the evolution of the MakerDAO ecosystem. The protocol is designed to maintain a stable peg with the US Dollar, allowing users to use it as a medium of exchange, borrow USDS against cryptocurrency collateral, or deposit it to earn yield.
Why This Verdict
USDS is classified as non-compliant (Haram) because its core business model, token utility, and revenue generation are fundamentally reliant on interest-bearing activities (Riba). The protocol's business activity fails Shariah screening because it operates primarily as a lending facility that charges stability fees—which function as interest—on collateralized debt positions. Additionally, the token's native yield mechanism is directly funded by these interest payments alongside yield generated from traditional finance instruments. Consequently, the protocol's revenue purity fails, as the share of income derived from non-compliant, interest-based sources is estimated to be well over the permissible 33 percent threshold.
Permissible Aspects
- At its most basic level, USDS functions as a stable medium of exchange and trading pair pegged to the US Dollar, providing price stability for users.
- The protocol's core operations do not involve any elements of chance, lotteries, or gambling (Maisir).
- The project demonstrates high legitimacy and security, featuring a public team with a battle-tested history in decentralized finance, zero core exploits in seven years, and billions in Total Value Locked (TVL).
Points of Caution
- !The protocol's treasury and reserve system actively deploys billions of dollars into interest-bearing traditional finance instruments, specifically US Treasury bills and tokenized corporate credit, to generate yield.
- !Users who opt into the Sky Savings Rate (SSR) by depositing USDS to receive sUSDS are directly participating in Riba, as this yield is funded by overcollateralized borrowing fees and Real World Asset (RWA) interest.
- !The protocol generates significant revenue from liquidation fees and its Peg Stability Module (PSM), which are deeply integrated with conventional banking and traditional finance systems.
Purification Note
Because USDS and the Sky Protocol are deemed non-compliant due to their fundamental reliance on Riba (interest-based lending and Treasury yields) and a haram revenue share exceeding the 33 percent threshold, standard dividend purification is not applicable. Shariah-conscious investors are generally advised to avoid participating in the protocol's yield mechanisms or holding the asset for investment purposes, as the core business model is structurally incompatible with Islamic financial principles.
BOTTOM LINE
USDS is a major stablecoin whose underlying protocol generates its revenue primarily through interest-bearing crypto loans and traditional finance yields, such as US Treasury bills. Because its core business model and native yield mechanisms are deeply intertwined with Riba, the asset does not meet Shariah compliance standards. Muslim investors should exercise caution and seek alternative stablecoins that do not rely on interest-generating reserves or lending facilities to maintain their peg and operations.
Fundamental Analysis Report
Sky Protocol is the evolution of MakerDAO, a foundational pillar of the DeFi ecosystem. It boasts a massive, proven product with billions in circulating supply and generates substantial, verifiable protocol revenue through stability fees and RWA yields. While its increasing reliance on Real World Assets introduces regulatory and centralization risks, its robust economic model, deep liquidity, and successful rebranding to capture the yield-bearing stablecoin market solidify its position as a blue-chip DeFi asset.
1. EXECUTIVE BOARD
2. THE DEEP DIVE
Fundamental Strengths
- Proven Track Record: Evolved from MakerDAO, one of the oldest and most battle-tested DeFi protocols in existence, boasting zero core exploits in seven years of operation.
- Massive Scale & Profitability: Generates hundreds of millions in annualized revenue (e.g., $123.8M gross revenue in Q1 2026 alone) and manages billions in Total Value Locked (TVL).
- Native Yield: USDS offers the Sky Savings Rate (SSR), providing yield directly to stablecoin holders without requiring them to take on active trading or liquidity provision risks.
- Diversified Collateral: Backed by a robust mix of crypto-native assets (ETH, wBTC) and yield-generating Real World Assets (RWAs).
Critical Vulnerabilities
- Centralization Risk via RWAs: A significant portion of the collateral backing USDS consists of centralized assets (like T-bills and tokenized credit), making the protocol vulnerable to regulatory crackdowns, asset freezes, or traditional banking failures.
- Complex Governance: The transition from MakerDAO to Sky introduced new tokens (USDS, SKY) and complex subDAO (Sky Agent Network) structures, which may confuse users and fragment liquidity if legacy DAI users do not fully migrate.
- Interest Rate Sensitivity: The protocol's revenue and the attractiveness of the Sky Savings Rate are highly dependent on macroeconomic interest rates; falling traditional yields squeeze protocol margins.
Competitor Comparison
vs. USDC (Circle): USDC is fully centralized and backed by fiat/T-bills in traditional banks, offering no native yield to on-chain holders. USDS is decentralized (though reliant on some centralized collateral) and passes yield directly to holders via the SSR. vs. Ethena (USDe): Ethena generates yield through delta-neutral basis trading (perpetual futures funding rates), which carries exchange and liquidation risks. USDS generates yield primarily through overcollateralized lending and RWA interest, offering a more traditional credit-risk profile.
About USDS
USDS (Sky Protocol) is deemed non-compliant because its core business model and native yield mechanisms are fundamentally reliant on interest-bearing activities (Riba). The protocol generates significant revenue from stability fees on collateralized loans and interest from traditional finance instruments like US Treasury bills, which directly fund the yield paid to USDS holders.