Spark Protocol Depth Research Report: On-chain Capital Allocation Platform of Sky Ecosystem Incubation

1. Project Introduction

1. Project Basic Information

Spark Protocol is a decentralized finance (DeFi) protocol focused on stablecoin yields and liquidity. It was initiated by the Sky (formerly MakerDAO) ecosystem and built by the Phoenix Labs team, which specializes in DeFi contract development. Spark's vision is to create a cross-chain, multi-asset scalable yield engine that intelligently deploys billions of dollars in stablecoin reserves from the Sky ecosystem into various DeFi, CeFi, and real-world asset (RWA) opportunities, providing stable yields for token holders. The protocol has been deployed across multiple mainstream networks, including Ethereum, Arbitrum, Base, Optimism, and Gnosis, with stablecoin liquidity currently managed at the billion-dollar level. Spark advocates user-friendly yield solutions, simplifying complex strategies so that the appreciation of crypto assets is as straightforward as bank savings.

2. Project Development History

The development trajectory of the Spark Protocol clearly reflects Sky's strategic intention to evolve from a single stablecoin issuer into a complex, multi-layered financial ecosystem. Each step has been meticulously planned to leverage existing advantages and precisely penetrate and reshape the landscape of the DeFi lending market.

Key milestones:

• May 2023: Protocol officially launched: The Spark Protocol, developed by the core development team Phoenix Labs incubated internally by Sky, officially launched on the Ethereum mainnet. Initially, the core function of the protocol is to provide an initial, price-competitive lending market for USDS using Sky's Direct Deposit Module (D3M). The direct goal of this initiative is to lower the borrowing costs of USDS, enhance its attractiveness relative to USDC and USDT, and reclaim some of the interest income that would have otherwise flowed to certain competing protocols like a trading platform and a certain DEX.

• End of 2024: Strategic Transformation and the Rise of SLL: With the general decline in yields in the DeFi market, the narrative of "Real Yield" emerges. Spark Protocol begins to strategically develop its "Spark Liquidity Layer" (SLL). The protocol is no longer satisfied with merely being a passive lending platform but actively starts to allocate a significant amount of funds in the pools to more stable real-world assets (RWA), such as tokenized U.S. Treasury bonds. This marks Spark's transformation from a purely DeFi protocol to a hybrid finance (HyFi) platform.

• Q1 2025: Multi-chain Expansion and Ecosystem Integration: To capture a broader user base and liquidity, the Spark Protocol begins its expansion to Layer 2 networks (such as Arbitrum, Base) and other public chains using cross-chain technologies like SkyLink and the CCTP of certain platforms. At the same time, SLL actively integrates with other DeFi protocols (such as liquid staking derivative protocols, yield aggregators, etc.), constructing a complex yield strategy matrix.

• June 12, 2025: TVL Soars: Driven by strong expectations in the market for the upcoming airdrop of the native token SPK, a large number of users flocked to Spark Protocol to participate in liquidity mining and rewards activities (such as Ignition, Overdrive). The protocol's Total Value Locked (TVL) surged sharply in a short period, once exceeding the $8.52 billion mark, fully demonstrating its strong market appeal and liquidity siphoning ability.

• June 17, 2025: SPK Token Genesis: The highly anticipated native governance token SPK officially launches. Through a retrospective airdrop for early users, liquidity providers, and community contributors, as well as simultaneous listing on leading centralized exchanges such as certain trading platforms, SPK quickly gained widespread market attention and liquidity.

3. Project Strategic Positioning

The "commercial bank" of the Sky ecosystem: If the Sky with the power to mint coins is viewed as the "central bank", then the Spark Protocol plays the role of the "commercial bank". It is responsible for efficiently allocating the liquidity within the Sky system (mainly USDS) to borrowers in the market and providing competitive returns for depositors.

The flagship product matrix includes:

• SparkLend: As the cornerstone of the protocol, this is a fully functional money market that allows users to supply (Lend) and borrow (Borrow) various crypto assets with over-collateralization. It supports variable interest rates and fixed interest rate lending for certain assets to meet the risk preferences of different users.

• Spark Savings (sUSDS): This is an innovative savings solution where users can automatically earn the Sky Savings Rate (SSR) by depositing USDS into this module. The sources of SSR's returns are highly diversified, including not only the lending spread of SparkLend itself, but more importantly, the stable returns generated from the protocol's investments in real-world assets (RWA) and other DeFi protocols through the Spark Liquidity Layer (SLL).

• Spark Liquidity Layer (Spark Liquidity Layer, SLL): This is the most strategically significant component of the Spark Protocol. SLL aims to actively and efficiently deploy idle or inefficient liquidity within the protocol to multiple blockchain networks outside of the Ethereum mainnet (such as Base, Arbitrum) and various high-yield DeFi protocols, thereby maximizing overall capital efficiency and returns.

4. Core Team Background

The core team of Spark has been deeply involved in the blockchain field for many years. It was not built from scratch by a startup team, but was born out of one of the most seasoned organizations in the DeFi space - Sky.

(1) Incubator: Sky Ecosystem

Sky is an early proponent and practitioner of the DeFi concept, having operated steadily since 2017. As the incubator and main supporter of the Spark Protocol, Sky provides unparalleled resource advantages:

• Brand Reputation: Sky has established a strong reputation in security, stability, and decentralized governance, providing a robust trust endorsement for the Spark Protocol.

• Deep liquidity: Through mechanisms like D3M, Spark can directly access Sky's billions of dollars in balance sheet, obtaining initial liquidity that is difficult for other protocols to achieve.

• Strategic Guidance: The development path of Spark is closely linked to Sky's "Endgame Plan", receiving top-level strategic design and guidance from core figures such as the founders of Sky.

( Development Team: Phoenix Labs

Phoenix Labs is the Core Contributor Team established within the Sky community to execute specific development tasks. This team focuses on building user-oriented products for the Sky ecosystem, with the Spark Protocol being its most important flagship project. The team members mainly include:

• Lucas Manuel (Co-Founder): Formerly the Technical Director of a certain platform, responsible for designing and developing the on-chain lending engine of that platform. He led the design of the cross-chain liquidity routing architecture in the Spark project, addressing the slip control issue of funds deployed across multiple networks. He holds a Master's degree in Financial Engineering from University College London, and his career began in the Fixed Income Department of a certain investment bank.

• Nadia (Co-founder): A well-known growth strategy expert in the DeFi space, she previously led Sky's ecosystem growth plan, driving a 300% increase in the adoption of USDS on L2 networks such as Arbitrum and Optimism. At Spark, she is responsible for product design and market expansion, having built a fiat deposit and withdrawal channel connecting CeFi institutions with DeFi protocols.

• Kris Kaczor (Chief Engineer): Blockchain infrastructure expert and co-founder of the Layer2 data analysis platform L2Beat. He leads the multi-chain deployment implementation in Spark and developed a zero-knowledge proof-based cross-chain state verification mechanism to ensure the secure flow of funds across dozens of chains. Previously, he served as a smart contract security auditor at a certain company.

2. Business Model

The operational model of Spark Protocol can be understood as a "DeFi super bank," which combines the deposit and lending business of commercial banks, the asset management business of investment banks, and some monetary policy transmission functions of central banks. The core of its business model is "low-cost liabilities + diversified high-efficiency asset allocation."

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) 1. Core Operating Mechanism

Privileged Liquidity Source ( Low-cost Liabilities ): This is the fundamental asymmetric advantage of the Spark Protocol. Unlike certain DEXs and platforms that primarily rely on market user deposits (which have a high cost on the liability side), Spark can directly obtain initial liquidity of up to billions of dollars at an extremely low cost (i.e., the base interest rate of USDS) through Sky's D3M ( Direct Deposit USDS Module ) mechanism from the Sky treasury. This is akin to having a "parent company bank" that can attract deposits at low interest rates, granting it significant flexibility and competitive advantage when pricing on the asset side.

(2) Innovative Interest Rate Model: "Transparent Rates" (Transparent Rates): The interest rates of traditional lending protocols are determined by market supply and demand, meaning that the higher the utilization of funds, the higher the interest rates. Although this floating model reflects market conditions, it is highly volatile and not conducive for institutions and large traders that require stable funding costs. The Spark Protocol introduces a "Transparent Rates" mechanism for its core asset USDS. This interest rate is not directly determined by market utilization but can be directly set by the governance of the Sky community (i.e., voting by SPK and Sky token holders). This mechanism provides borrowers with a high degree of interest rate predictability, making it one of the most attractive stablecoin lending platforms in the market.

( Diversified sources of income ) High-efficiency asset allocation (: The income of Spark Protocol is not limited to the interest rate spread within the SparkLend market, but is built through its powerful Spark liquidity layer ) SLL ( actively attacking, creating a diversified income portfolio:

• Traditional lending spread: In the SparkLend money market, the difference between the borrowing rates and deposit rates of various assets, which is its primary source of income.

• Real World Assets )RWA( Investment: SLL will invest a large amount of idle USDS in tokenized low-risk, stable-return real world assets. A typical example is partnering with an asset management company to invest its funds into the BUIDL fund, thereby capturing the yield from U.S. Treasury bonds. This portion of the return is stable and has low correlation with the fluctuations of the crypto market, providing a solid revenue base for the protocol.

• Cross-protocol/Cross-chain strategy deployment: SLL plays the role of an "on-chain hedge fund". It efficiently deploys capital to other high-yield DeFi protocols using cross-chain bridges and liquidity networks. For example, participating in the "Delta neutral" strategy on a certain platform to earn returns, or engaging in liquidity mining and providing liquidity on protocols such as a certain DEX.

• Institutions and CeFi Lending: By partnering with compliant CeFi platforms such as certain institutions and platforms, Spark will lend part of the funds to institutional traders and market makers through over-collateralization, entering the on-chain cryptocurrency OTC lending market to obtain wholesale-level lending interest.

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) 2. Business Model Closed Loop

The business model of Spark has formed a powerful positive flywheel:

• Obtain low-cost Depth liquidity through D3M.

• Allocate liquidity to RWA and other high-yield strategies through SLL to generate stable and substantial "real yields".

• Feed this part of the revenue back to USDS deposit users (through the SSR of sUSDS), providing the most attractive stablecoin deposit rates in the market.

• High deposit rates attract more external USDS inflows, further deepening the liquidity moat of the protocol.

• Strong liquidity and predictable borrowing rates attract a large number of high-quality borrowers, increasing the protocol's interest income.

• The entire process continuously cycles, enhancing the network effects of USDS and the market position of Spark Protocol.

( 3. Ecological Construction

Spark Protocol is not an isolated application, but is designed to be an integral part of the Sky ecosystem (the final form of the Sky Endgame plan).