Sky, formerly known as MakerDAO, has been criticized for managing $756 million USD Coin reserves through an EOA under the lite peg stability module (PSM).

A user on social media platform X expressed concerns about the protocol managing reserves of this size with an EOA. Critics argue that such a custody model can leave funds vulnerable to potential attacks or internal misuse.

Following Sky’s recent rebranding and discussions regarding the possibility of implementing a freeze function in the future, the risk of breach or misuse of funds managed through this EOA could further negatively impact the protocol’s reputation and user trust.

Lite PSM was designed as a mechanism that allows users to exchange USDC at a fixed rate to keep the stablecoin pegged to the US dollar.

As part of the migration plan, Sky will move reserves from legacy PSM to lite PSM in three phases, with $20 million transferred first.

However, according to a social media post by a user on X and the page about lite PSM on the Sky forum, Lite PSM funds are allegedly controlled by an EOA, raising accountability and security concerns.

“The private keys required to recreate the MPC account were destroyed as part of the setup process with Coinbase Custody,” said Sky co-founder Rune Christensen.

EOA is a standard Ethereum wallet and is controlled by a private key; This is different from smart contracts, which can enforce programmed security rules without intervention.

Critics of the EOA-based custody model argue that EOAs are less transparent and secure due to the lack of features such as multi-signature verification or time-locked transfers.

This method of fund management could expose the $756 million reserve to risks such as private key interception or malicious actions, especially if no measures were taken to restrict the movement of funds.

Christensen stated that destroying the private keys required to recreate the MPC account eliminated this concern and emphasized that there was no risk of the private key being compromised.

However, Christensen’s statements do not fully answer questions such as who ultimately controls the wallet, how transactions are authorized, or how governance decisions may affect fund management actions.

Christensen had previously announced that he was preparing a proposal to halt new token issuances and reduce the total supply of the protocol.

Christensen stated that this proposal only aims to implement a “burn”-based deflation model and steadily reduce the underlying token supply through a systematic burn mechanism.