Sky (@SkyEcosystem): The Capital Framework Behind SKY Buybacks

The Capital Framework Behind SKY Buybacks Every SKY buyback begins with the same capital-allocation sequence: generate revenue, cover costs, strengthen reserves, and allocate the remaining surplus. Sky Governance determines how that surplus is allocated across reserves, staking rewards, open-market SKY purchases, and permanent supply reductions. The framework is designed to adapt to Sky Protocol’s financial position rather than maximize token purchases at every point in the cycle. That sequence is central to how the program works. Buybacks begin with Protocol Surplus As of September 16, Sky Protocol had generated $420.15 million in protocol revenue over the trailing year. Revenue is not directly available for buybacks. It first covers protocol expenses, after which the remaining amount is allocated through a public, governance-defined waterfall. One destination within that framework is the Smart Burn Engine, which uses USDS to purchase SKY on the open market. Under current governance parameters, those purchases can support SKY Staking Rewards or permanently remove SKY from circulation. The buyback program launched in February 2025. As of September 16, $125.24 million had been deployed to acquire approximately 2 billion SKY. Individual purchases can be followed through the Sky Ecosystem Financial Dashboard. The level of buyback activity, however, does not operate independently of Sky Protocol’s financial position. Why Sky Governance reduced buybacks On March 14, 2026, Sky Governance reduced the programmatic buyback allocation from 75% to 7.5% of Net Protocol Surplus. A larger share was retained to accelerate the growth of Sky Reserves toward the $150 million Turbo-Fill Floor. SKY Staking Rewards continued during this period, but they were funded from SKY already held in the protocol treasury rather than from new, revenue-funded buybacks. The decision established a clear priority: strengthening the protocol’s reserve position took precedence over maintaining the previous level of token distributions. That capital retention produced measurable results. Sky Reserves received $29.87 million during Q2 and closed the quarter at $82.40 million. As of September 16, the Financial Dashboard showed Sky Reserves at $92.19 million, representing 61.5% of the $150 million Turbo-Fill Floor. The reduction in buybacks was therefore not a departure from the program. It was an application of the capital discipline built into it. The transition to Stage 2 The framework introduced earlier in the year established a staged path for moving SKY Staking Rewards from treasury funding to Net Protocol Surplus funding. Sky Protocol has now entered Stage 2 of that transition. Under the current Stage 2 framework, each month’s Net Protocol Surplus is allocated across four destinations: 22.5% to open-market SKY buybacks for SKY Staking Rewards 22.5% to USDS rewards for eligible SKY stakers 5% to SKY buy and burn 50% to the Surplus Buffer Together, the first and third allocations direct 27.5% of monthly Net Protocol Surplus toward open-market SKY purchases. The distinction between them is important. The 22.5% allocation purchases SKY that returns to the protocol treasury and is distributed through SKY Staking Rewards. The separate 5% buy-and-burn allocation permanently removes the purchased SKY from supply. That buy-and-burn mechanism is now active. Its first execution permanently removed 2.86 million SKY from circulation, moving the framework from policy into operation. The USDS allocation gives SKY stakers the option to receive Staking Rewards in USDS, while up to half of monthly Protocol Surplus continues strengthening the Surplus Buffer. Stage 2 does not mean that reserve building is complete. It moves staking rewards from treasury-funded to Protocol Surplus-funded while retaining reserve accumulation at the center of the framework. Connecting Net Protocol Surplus with SKY Under Stage 2, a defined portion of Net Protocol Surplus supports SKY-related mechanisms through staking rewards, recurring open-market purchases, and permanent supply reductions. Governance-defined parameters determine how much capital is retained and how much is allocated to each mechanism. Those parameters can change as Sky Protocol’s financial position and governance priorities evolve, as demonstrated by the March restructuring. The framework does not create a fixed distribution or guarantee any outcome for the market price of SKY. Staking Rewards remain variable, and governance can modify the relevant parameters. What the framework provides is a public process that can be evaluated as it operates. Protocol revenue, expenses, Sky Reserves, the allocation waterfall, open-market purchases, treasury-held SKY, and individual buyback transactions can all be followed through the Sky Ecosystem Financial Dashboard. SKY buybacks are one output of a broader operating model: Generate revenue → Cover costs → Build reserves → Allocate surplus.