Do CDP-based stablecoins (like DAI/USDS) carry the same risk profile as fiat-backed ones (like USDC)?
No, the trust models are fundamentally different. USDC's value rests on dollar cash and short-term Treasuries the issuing company holds in a bank account — you're trusting that company to disclose honestly and regulators to actually oversee it. A CDP-based Stablecoin's value rests on on-chain, publicly verifiable crypto assets — you don't need to trust any single institution, but you do take on the price volatility of the crypto collateral itself, plus how robust the protocol's Liquidation design actually is.
This means the two types depeg for entirely different reasons: USDC depegs are typically triggered by shaken confidence in the issuer's reserves, while CDP-based stablecoins more often depeg from sharp collateral market swings that the liquidation mechanism can't absorb fast enough.
How is the stability fee calculated, and could it spike suddenly and make borrowing costs spiral out of control?
The stability fee is essentially an annualized rate that the protocol adjusts dynamically through governance, based on that collateral type's risk profile and market supply-and-demand — similar in concept to a variable-rate loan. It's not a fixed number: when a protocol wants to encourage more borrowing against a particular collateral type, it may lower the fee; conversely, if it judges that collateral type's risk has risen, or wants to curb over-expansion of Stablecoin supply, it raises the fee.
For users, this means borrowing cost isn't fully locked in at the moment you open a position — it requires ongoing attention to the protocol's governance activity. On the flip side, this mechanism also doubles as a tool the protocol uses to help maintain the stablecoin's peg, since adjusting borrowing incentives indirectly influences how much stablecoin supply is in circulation.
If my collateral's value drops but hasn't yet breached the Liquidation threshold, is there anything I can do to avoid liquidation?
The most direct move is proactively adding more collateral, which raises the Collateralization Ratio and widens the safety buffer. Another option is repaying part of the Stablecoin debt early, which also raises the ratio. Most protocol interfaces display your current collateralization ratio in real time along with how much room remains before the liquidation threshold — meaning users theoretically have a chance to act before liquidation actually happens, rather than passively waiting for it.
Worth noting, though: during sharp price swings (say, an asset dropping fast in a short window), adding collateral or repaying debt still takes time and incurs transaction costs. If the market moves faster than a user can react, the buffer can get consumed before any action is taken — which is why many long-term CDP users deliberately keep their ratio well above the minimum threshold, trading lower capital efficiency for a larger reaction window.
Does using tokenized real-world assets (RWA) as collateral change the risk structure of a CDP?
Yes, and it's a double-edged sword. Tokenized RWAs like U.S. Treasuries carry far less volatility than crypto assets, so including them in the collateral mix can theoretically reduce overall price volatility risk — one reason Sky has been actively expanding its RWA share in recent years, diversifying away from risk that was previously heavily concentrated in assets like ETH.
But this also introduces a different kind of risk that CDPs were originally designed to avoid: the underlying assets behind tokenized RWAs are still custodied and issued by real-world institutions. If those institutions run into operational trouble or legal disputes, whether the tokenized asset can actually be redeemed and whether Liquidation can execute smoothly become new sources of uncertainty — creating some tension with the "fully trustless" spirit of the original design, and a question worth asking when evaluating a CDP-based Stablecoin with a high RWA share.
Stablecoins like USDC and USDT ultimately rest on trusting that a company genuinely holds an equivalent amount of dollars in a bank account. But decentralized finance has a completely different way of minting stablecoins — one where you don't need to trust any company, because there isn't one lending you anything. The entire borrowing relationship is negotiated between you and a piece of self-executing code. This is the Collateralized Debt Position (CDP), a design pioneered by MakerDAO back in 2017 that remains the core mechanism behind decentralized stablecoins today.
When you deposit ETH into a CDP Smart Contract (in Sky, formerly MakerDAO, this contract is called a Vault), the protocol doesn't hand your ETH off to someone else to earn a spread. Your ETH simply sits in the contract, and based on its market value, you're allowed to "borrow" a proportional amount of Stablecoin — one the protocol mints as entirely new supply against your collateral, not a deposit reallocated from somewhere else. This is also why CDP-based stablecoins don't need any company holding equivalent reserves in a bank: the value backing them is directly on-chain, instantly verifiable crypto assets, not anyone's balance sheet.
Nearly every CDP system requires over-collateralization, commonly at a 150% threshold or higher — depositing $150 worth of ETH lets you borrow at most $100 of stablecoin. What looks like wasted capital efficiency is actually the entire system's only safety valve: crypto asset prices swing wildly, and if the protocol only required 100% collateralization or less, even a modest drop in collateral value could leave the protocol holding less collateral than the stablecoin debt it owes — an insolvent system. The buffer created by over-collateralization gives the protocol room to trigger Liquidation and close out a position before prices actually breach the safety line.
Liquidation itself is fully automated: the moment the Collateralization Ratio falls below the protocol's set threshold, the smart contract automatically auctions off part or all of the collateral to repay the debt in stablecoins, while collecting a liquidation penalty typically between 10% and 13%. There's no manual review, no customer service line to call — the instant price data crosses the line, liquidation executes.
MakerDAO rebranded to Sky in 2024, and alongside the rebrand upgraded the original DAI into a new version called USDS, which now circulates in parallel and is convertible 1:1 with DAI. As of mid-2026, combined Circulating Supply of DAI and USDS stood at roughly $10 billion, backed by approximately $14.5 billion in protocol collateral — a mix that includes ETH and staked ETH (such as stETH), alongside a growing share of tokenized real-world assets like U.S. Treasuries, which means Sky's revenue is no longer entirely tied to crypto market swings. That makes Sky the third-largest dollar stablecoin issuer overall, behind only USDT and USDC.
If you're considering borrowing stablecoins through a CDP, what actually matters isn't just the collateralization threshold — two easily overlooked details deserve attention too. First is the stability fee, a cost that accrues continuously while you hold the position; looking only at the collateralization ratio without factoring this ongoing cost in can understate the position's real cost over time. Second, liquidation risk always comes down to whether your collateral's price can hold — not how safe you subjectively feel about it. A 150% ratio sounds like a comfortable Margin, but in a sharp downturn like 2022's, that buffer can get eaten through faster than expected. If you actually want to hold a CDP long-term to keep your price exposure while accessing liquidity, the real work is monitoring your collateralization ratio continuously — not setting it up once and forgetting about it.