Sky is under investigation into a $756 million misappropriation scandal.
Sky, formerly known as MakerDAO, is facing criticism for relying on an Externally Owned Account (EOA) to manage its $756 million USD Coin inventory in its Lite Peg Stability Module (PSM).
A concern about the protocol's dependency on EO was raised by an X user.
Critics say this custodial model can leave funds vulnerable to exploitation or insider abuse.
With the recent switch to Sky and the ability to implement future freeze functionality, the risk of misappropriation or misuse of these EOA-managed funds could further impact the protocol's reputation and user trust.
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What is Simple PSM?
Lite PSM is a mechanism that helps Sky keep the Storcoin peg to the US dollar by allowing users to permanently convert their Storcoin currency into USDC.
As part of the migration plan, Sky will transfer inventory from legacy PSM to lite PSM in three phases, with $20 million moved first.
Still, simple PSM funds are said to be under the control of EOA, raising liability and security concerns as described in X-user posts and Sky Forums pages related to lit PSM.
Source: wjelements
“Private keys are needed to reset the MPC,” Rune Christensen, co-founder of Sky, told Cointelegraph. [multiparty computation] Account deleted as part of Coinbase Custody setup process.
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A critique of guardianship based on EOA.
An EOA is a standard Ethereum wallet controlled by a private key, unlike a smart contract, which can enforce programmed security rules without anyone's intervention.
Critics of EOA-based custody argue that EOAs are inherently opaque and insecure due to features such as multi-signature authentication or time-locked transfers.
This method of fund management exposes the $756 million reserve to private key compromise or dangerous malicious actions, especially if there are no safeguards that restrict the movement of funds.
Christensen's explanation that the private keys needed to “re-establish the MPC account” are destroyed counters this threat because the private key eliminates the risk.
However, the Sky co-founder's insight doesn't fully address concerns about who controls the wallet, how transactions are authorized, or whether management decisions can enforce money management measures.
Cointelegraph asked Christensen about these points, but received no further response in print.
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The sky pushes deflationary tokenomics
Christensen has previously stated that he is preparing a proposal to halt the release of new tokens and reduce the total supply of the protocol.
According to Christensen, the proposal implements a purposeful “burn-only” destruction model that permanently reduces the supply of core tokens through a systematic burn method.
He told Cointelegraph at the time that, due to the risk of bankruptcy, the protocol would follow “how the original Tokinomics always worked”, which was to “plug the hole” through token releases.
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