DeFi Lenders Spurn Sky's Stablecoin

Olivia Capozzalo & Squiffs _
December 04, 2025

gm, Defiers!

Today’s big story:

Citing depeg risk and low usage, at least two DeFi giants have removed Sky’s USDS stablecoin from supported collateral

In other news:

Ethereum launches Fusaka upgrade
Ostium raises $24 million
Kamino blocks Jupiter Lend Refinance

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In the third episode of our Avalanche Ecosystems mini-series, we explore one of crypto’s biggest trends: real-world asset (RWA) tokenization. From land records to treasuries and equities, Avalanche enables institutions to create true on-chain assets and not just wrappers.

With insights from Ava Labs, Balcony, Grove, and Dinari, we explore how Avalanche is powering the next wave of RWA innovation.

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📈 Markets in the Past 24 Hours

TICKER	VALUE	24H
Bitcoin	$92,160	-0.47 %
Ethereum	$3,143.4	0.89 %
XRP	$2.11	-3.20 %
BNB	$900.39	-0.20 %
Solana	$140.82	-0.35 %

Today’s Big Story

DeFi Lenders Tighten Risk Controls

With DeFi sentiment slowly recovering from the fallout of 10/10, Stream Finance, and the Balancer exploit, Aave is set to remove USDS and DAI as collateral, per recommendations from its risk teams.

The proposal was submitted on Nov. 17. It cites issues such as low profitability and questions Sky’s issuance model, noting its low- or zero-cost credit lines and riskier yield strategies as “a degree which is outside of what is acceptable for Aave collateral.”

The proposal has naturally received pushback from Sky supporters, including its co-founder, Rune Christensen.

On the governance forum, Christensen replied, “Given that Stars pay the base rate to Sky, which is currently 4.55%, I am wondering what examples you are referring to of these zero or low-cost credit lines. This may be a misunderstanding of how the fee payments are settled, which happens through monthly settlements.”

Despite his assertion that Sky’s risk profile is misunderstood, the shift is set to move forward, and Aavechan’s Marc Zeller confirmed that DAI, DeFi’s oldest decentralized stablecoin, is next to leave.

Aave and Sky’s impending divorce could be a sign of things to come, as major DeFi protocols double down on user protection and risk management in the wake of Stream Finance’s implosion.

Overall, the knock-on effects of Stream and Balancer have been minimal compared to some of the previous contagions we’ve seen in DeFi, but it's clear that protocols are slowly backing away from exposing their users to leveraged yields.

While aided by poor price action, the total DeFi TVL is down 28% since 10/10, and down 19% since the Stream and Balancer incidents.

DeFi TVL - DeFiLlama

Only time will tell how many other DeFi protocols follow suit, but with legacy DeFi protocols such as Aave cracking down on risk management and choosing verification over trust, there may be a domino effect set to ripple throughout the rest of the market as risk managers and governance participants re-evaluate the exact nature of their exposure.

Squiffs, resident degen at The Defiant

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🎬WATCH

More Than Wrappers | RWAs on Avalanche | Ecosystems, Ep. 3

In our third episode of the Avalanche Ecosystems mini-series, we dive into one of the most important trends in crypto: tokenization of real-world assets (RWAs). From land records to treasuries, private credit, and publicly traded equities, Avalanche is enabling institutions to not just issue onchain wrappers, but to create the real thing. It's tokenization the right way.

With interviews from Luigi D’Onorio DeMeo and Morgan Krupetsky (Ava Labs), Dan Silverman (Balcony), Kevin Chan (Grove) and Gabriel Otte (Dinari), we explore how Avalanche’s architecture is powering a new wave of RWAs across finance, government infrastructure, and consumer applications.

Watch the mini doc here:

This content is part of a media partnership between The Defiant and Ava Labs

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