Maker’s Rebrand to Sky Sparks Controversy Over New Stablecoin’s Freeze Function

Maker, which has rebranded as Sky, is facing backlash over its newly upgraded stablecoin, USDS. Observers have raised concerns about a potential “freeze function” that could challenge the decentralized nature of the protocol. This function allows the issuer to freeze the token, leading to questions about the project’s commitment to decentralization.

On August 28, Monad marketer “Tunez” questioned the purpose of the project in light of the new feature, asking his 155,000 X followers if this undermines the project’s core principles.

Clarification from Maker Protocol

In response to the backlash, Maker co-founder Rune Christensen clarified on August 27 that the freeze function would not be active at launch. Instead, an upgrade capability will be present, with future governance potentially deciding how and if a freeze function should be implemented.

Christensen explained that any decision to activate such a function would come after considering various risk factors and legal requirements. The freeze function would be employed to ensure compliance with legal standards in jurisdictions where Maker operates, particularly to secure legal recourse for real-world asset (RWA) collateral.

Adam Cochran of Cinneamhain Ventures defended the freeze function, arguing that it is necessary to back the new stablecoin with U.S. Treasuries. He noted that accessing Treasury yields typically requires compliance with traditional financial rules, which includes having mechanisms like a freeze function and jurisdictional restrictions.

Cochran pointed out that integrating with the U.S. traditional finance system involves adopting its regulatory framework. The freeze function and VPN blocks are seen as necessary trade-offs to achieve these integrations.

Sky’s rebranding also includes renaming its DAI stablecoin to USDS. The project’s website now blocks access via VPNs, further fueling criticism from the DeFi community. Critics argue that these changes reflect a move towards centralization, contradicting the principles of decentralized finance.

Christensen addressed misinformation about the freeze function in a post, clarifying that only USDS, and not DAI, will feature this function. He emphasized that DAI will continue to operate as before, with its immutable smart contract remaining unaltered.

Centralized stablecoins like Tether (USDT) also have freeze functions. For example, Tether recently froze $5.2 million worth of USDT linked to phishing scams in May. This incident highlights the role of centralized control in managing risks associated with stablecoins.

Strategic Goals and Future Outlook

The introduction of the freeze function aligns with Maker’s “Endgame” roadmap, which aims to back the stablecoin with real-world assets and scale its supply to compete with major players like Tether. The move reflects a strategic effort to integrate more closely with traditional financial systems while navigating the challenges of maintaining decentralization.

In summary, while the new freeze function in USDS has sparked significant debate, it represents a strategic decision by Maker to balance regulatory compliance with its broader goals of scaling and integrating with traditional financial systems.