Maker/Sky is already earning the same rate on its actively-managed, risk-taking Prime book than it would earn holding idle USDC on Coinbase, (where the exchange pays Sky to custody it) So I find it surprising that Sky wants to do this 10 bps cut to their spread. Sky reports a very small positive NIM as of today (3.67% - 3.62% = 5 bps), and that’s actually better than the 12-month average. So on a risk-reward basis, it seems like you’d want to shrink the Primes’ balance sheets rather than try to give them back a few bps. Spark, for example, used to pay a hefty premium over the idle USDC in the PSM. That premium has eroded over the last year, and has been flat or negative in recent months. The 12-month spread over idle USDC appears to be about 0.6% and drifting lower as months of negative or de minimis spread accumulate. Think about that for a moment. For taking on risk and complexity, Sky has been getting less yield than if the funds were used to buy USDC and hold it on Coinbase. Grove still manages to eke out 20-30bps premium over holding USDC, but it’s hard to think that compensates for the risk profile vs idle USDC. Obex is less mature but shows the same pattern of compressing yield for Sky since February launch. One could argue this is a depressed rate environment and I think that’s a fair retort. It’s not like Ethena et al are doing demonstrably better. Cyclical markets are just a fact of life in crypto. But why not trim their credit lines to encourage a smaller book with sensible risk premiums instead of giving 10 bps back to the Primes, as that doesn’t really fix the core issue. Jettison the marginal positions inside the Primes until Sky is paid for the risk they add vs idle USDC. If better rates or opportunities emerge, then you can always allow the Primes to ramp up again. But the convergence on a tiny or negative risk premium is occurring across all of the Primes, so it’s a systematic challenge, not one team fumbling a couple quarters of performance. As I’ve said elsewhere, it’s actually pretty hard to make money in stablecoins! It can be done (Tether shows this, as well as some periods for Sky and Circle), but it’s not easy. Helpful data sources in next post.