Sky's $1B Wall Street Gambit: How Grove Unlocks Institutional Crypto

Sky, the organization behind stablecoin USDS (formerly MakerDAO), was prepared to raise $1 billion from its reserves to invest in a JAAA, a fund that invests in corporate loans. Grove, Sky's newly launched protocol, would execute the investment and tokenize the on-chain investment products .

What Prompted Sky's Expansion into On-Chain Loans?

Sky's $1 billion investment in JAAA was part of its effort to diversify the reserves backing USDS. Formerly known as MakerDAO, Sky rebranded in August 2025, replacing DAI with USDS and MKR with SKY. USDS had reached a reported market capitalization of $7 billion, although only 10.7% of MKR holders had converted to SKY at the time.

Like other crypto-backed stablecoins, USDS was at the mercy of crypto market volatility.  Allocating some of its reserves to corporate-loans would, therefore, allow Sky to diversify its income streams and reduce its exposure to crypto-specific risks.

The investment also supported Sky's efforts to expand its governance structure. Rather than relying entirely on direct token-holder votes, Sky could delegate investment decisions to an outside entity (Grove). The $1 billion deployment gave Sky an opportunity to test this approach on a large scale.

How JAAA Brought Institutional Credit On-Chain

Sky's investment targeted the Janus Henderson Anemoy AAA CLO Strategy (JAAA), which invested in collateralized loan obligations (CLOs). 

A CLO is an investment product backed by a pool of corporate loans. These loans are grouped into different portions, known as tranches, which determine the order in which investors receive payments and absorb losses.

JAAA focused on the AAA-rated tranche, which had the highest repayment priority. These tranches were, hence, generally considered less risky than lower-rated ones. 

Historically, AAA-rated tranches had offered yields 80–120 basis points above comparable US Treasuries. JAAA targeted an 8.4% yield, although actual returns could vary.

CLOs had long been a popular investment for institutional investors, but due to their complexity and long settlement periods, they were unattractive to blockchain native investors (who often seek same-day settlement and redemption). 

Tokenization of these loans via Centrifuge would solve some of these issues. This would allow on-chain investors to access institutional credit and supported same-day USDC redemptions.

"CLOs are the next frontier - tokenization reduces settlement friction while preserving the asset's risk profile," said Nick Cherney, Janus Henderson's Head of Innovation.

How did Grove Facilitate Sky's Investments in JAAA?

While JAAA provided access to institutional corporate loans, Sky needed a way to deploy its on-chain capital into these regulated financial products. Grove filled this role by connecting Sky's funds with institutions such as Janus Henderson without taking custody of the assets.

Grove was a non-custodial protocol developed by Grove Labs, a subsidiary of Steakhouse Financial, which spun out of Sky. It combined a legal framework to support compliance with regulated institutions and smart contracts to manage the allocation of capital across assets.

Investment decisions would be overseen by an independent allocation committee. This differed from broad token-holder governance, which could involve lengthy voting processes. The model allowed investment decisions to be handled by a specialized group while maintaining oversight of how capital was deployed.

"With the launch of Grove, for the first time, protocols can access liquid, institutional-grade CLOs while maintaining the flexibility to pivot between DeFi and TradFi yield environments," said Sam Paderewski, Grove Labs co-founder.

Risks and Implications for Sky

While the tokenization of CLOs represented an innovative use of blockchain technology, investors should not assume that these instruments are any less risky than their traditional counterparts.

Although tokenization made institutional credit more accessible to on-chain investors, it cannot guarantee that the underlying assets could be sold quickly. AAA-rated CLO tranches were not frequently traded in secondary markets, and so investors might not be able to sell their shares in the event of a down round.

Grove's governance structure carries risk as well. The independent allocation committee will have to ensure that investments remain compatible with USDS's stability requirements. As the model was relatively new, managing a $1 billion deployment was expected to test its ability to handle complex investment decisions at scale.

As a new product, Grove's governance structure has not been tested in a bear market. If the $1B investment performs as expected, Grove can continue to evolve and provide institutional-grade yield opportunities to protocols and token economies alike. If it fails, however, the risks described above could have serious implications for the future of token-based investing.

In addition, the SEC's recent lawsuit against Barnbridge DAO illustrated the fact that having an appropriate compliance framework does not preclude regulatory scrutiny. Grove's structure still needed to further develop to meet applicable legal and regulatory requirements as it worked with institutional investors.