Spark
Spark is a decentralized finance protocol that offers lending and borrowing services across multiple Ethereum-compatible networks. Its features include liquidity markets, staking, governance, and rewards systems tied to user participation. [1]
Overview
Spark is a decentralized finance (DeFi) platform focused on providing stablecoin-based savings and lending services across multiple blockchains, including Ethereum, Arbitrum, Base, Optimism, Unichain, and Gnosis Chain. It features products like SparkLend, a lending market, and Spark Savings, which enables users to earn yield on deposited stablecoins. Governance and protocol security are managed through its native token, SPK, which can be staked for rewards and used in signaling votes. Spark also runs programs like Spark Rewards and Spark Points to incentivize user participation and ecosystem growth through collaborations with other DeFi projects. [8]
Features
Liquidity Layer
The Spark Liquidity Layer (SLL) automates the provision of liquidity for USDS, sUSDS, and USDC across multiple blockchain networks and DeFi protocols, courtesy of Sky. This allows users to earn the Sky Savings Rate on their preferred networks through sUSDS and enables Spark to supply liquidity into various DeFi markets to optimize yield.
SLL addresses previous liquidity challenges by supplying sUSDS liquidity directly from Sky to supported networks, starting with Base and expanding to others, thereby providing users with easier access to yield on stablecoins across different chains. It operates by minting USDS and sUSDS via Sky Allocator Vaults, bridging assets to other networks, and depositing them into liquidity pools or lending markets. The system maintains liquidity stability by holding reserves, primarily USDC, and utilizes automated monitoring to rebalance funds as needed. Sky Governance controls the SLL, ensuring funds are deployed only into approved use cases. [9] [10]
Spark Rewards
The Spark Rewards program provides weekly token incentives to users who engage in activities that help expand the Spark ecosystem. These rewards are provided through collaborations with various DeFi partners and are designed to promote cooperation across decentralized finance platforms. Typically, the rewards consist of tokens from Spark’s partner projects, such as the Redstone campaign, which rewards users for depositing cbBTC into the SparkLend market that operates with RedStone Oracles. [11]
Spark Points
The Spark Points program enables users to accumulate points by participating in campaigns that reward actions supporting the development of the Spark ecosystem. Users can view active campaigns and participation instructions on the Spark Points page. Once a user engages with a campaign, Spark Points begin to accrue based on their activity. [12]
Products
Savings
Spark provides a way for users to deposit stablecoins into Savings Vaults in exchange for Savings Tokens, which represent the user’s share of the vault. These tokens gradually increase in value relative to the deposited asset as yield accrues over time.
The Savings Tokens—sUSDS, sDAI—and the associated yield mechanisms, such as the Sky Savings Rate and the DAI Savings Rate, are non-custodial and permissionless smart contracts developed by Sky. Spark does not issue these tools, and Spark does not have custody or control over user funds or the underlying savings protocols.
Spark currently offers three Savings Vaults. The Savings USDS vault directs USDS deposits into the Sky Savings Rate. The Savings USDC vault similarly deposits USDC into the Sky Savings Rate. The Savings DAI vault allocates DAI deposits into the DAI Savings Rate. [13]
sUSDS
Savings USDS (sUSDS) is the current version of sDAI, offering a higher yield through the Sky Savings Rate (SSR). It is a tokenized form of USDS deposited into the SSR via Sky, allowing users to earn yield while maintaining the ability to transfer, stake, lend, and use the token freely. sUSDS is available on networks such as Ethereum and Base, and each token increases in USDS-denominated value over time. As an accumulating (non-rebasing) token, sUSDS remains fully fungible and can be instantly redeemed for USDS without withdrawal restrictions or liquidity constraints.
The SSR, which distributes yield in USDS, is funded by Sky’s revenue sources, including fees from collateralized loans, investments in U.S. treasury bills, and liquidity activities in SparkLend and the Spark Liquidity Layer. Sky Governance governs the Sky Savings Rate and may change over time. Spark does not control or have custody of the SSR or the sUSDS token. To obtain sUSDS, users can deposit stablecoins into the Savings Vault through the Spark App. [14]
sUSDC
sUSDC is a tokenized version of USDC deposited into the Savings USDC Vault, which allocates funds into the Sky Savings Rate (SSR), a non-custodial smart contract managed by Sky. This token enables users to earn yield on their deposits while maintaining the flexibility to transfer, stake, lend, or use the asset across supported networks like Ethereum, Base, and Arbitrum. sUSDC gradually increases in USDC-denominated value over time as an accumulating token, rather than through rebasing. Spark does not have custody or control over the SSR or user funds within it.
The yield mechanism involves converting USDC into USDS through the Sky Peg Stability Module (PSM), depositing it into the SSR, and later reversing the process upon withdrawal. These conversions are executed at a 1:1 ratio with no slippage and only standard network fees. Sky ensures sufficient USDC liquidity through the Spark Liquidity Layer by maintaining 25% of USDS reserves in assets like USDC, enabling large redemptions. The SSR is funded by Sky’s revenue sources, including loan fees, U.S. Treasury investments, and liquidity provisioning. Sky Governance determines the yield rate, which is visible in the Spark App; Spark has no role in setting or managing this rate. [15]
sDAI
Savings DAI (sDAI) was the earlier version of Savings USDS (sUSDS) and functioned as a tokenized representation of DAI deposited into the Dai Savings Rate (DSR) on the Sky Protocol. sDAI allowed holders to earn yield from the DSR while maintaining the ability to use the token across various DeFi applications. It was a non-rebasing, accumulating token that increased in DAI-denominated value over time and remained fully redeemable for DAI.
The yield for sDAI came from the DSR, which had to be activated by depositing DAI into a specific smart contract. The DSR was funded by Sky Protocol’s revenue sources, including loan fees, U.S. treasury investments, and liquidity provisioning. Both the DSR and sDAI were non-custodial, permissionless, and governed by the Sky Protocol; Spark had no involvement or control over them. [2]
SparkLend
SparkLend is a decentralized, non-custodial liquidity market protocol that allows users to lend or borrow digital assets. Lenders supply liquidity to the protocol and earn passive income as borrowers utilize their assets. Borrowing occurs in an overcollateralized and perpetual manner, meaning borrowers must deposit more value than they withdraw and can maintain positions indefinitely, provided they meet collateral requirements. The protocol is open source, allowing users to interact with it through a user interface, API, or directly via smart contracts on the Ethereum network. This openness supports third-party integrations and enables broader accessibility. [3]
Lending/Borrowing
On SparkLend, users deposit assets into liquidity markets, making them available for borrowing by others. Depositors earn interest on their deposits, and they can also use these deposits as collateral to borrow other assets. Borrowers pay interest to lenders, with rates determined by the supply and demand of the borrowed assets. [3] [16]
E-Mode
Efficiency Mode (E-Mode) enables borrowers to maximize their borrowing capacity when the supplied collateral and borrowed assets have correlated prices, typically derivatives of the same underlying asset, such as stablecoins pegged to USD. In this mode, providing an asset like sDAI increases collateralization power when borrowing related stablecoins, such as USDC or USDT.
E-Mode applies only to assets within the same category, such as stablecoins, and allows borrowing exclusively from that category. Assets outside the E-Mode category can still be used as collateral, but follow standard loan-to-value (LTV) and liquidation rules. [3] [17]
Isolation Mode
Isolation Mode restricts new assets from being used as the sole collateral in borrowing positions. Borrowers who deposit an isolated asset as collateral cannot use other assets for collateral simultaneously, although they can still supply other assets to earn yield. This mode sets a specific debt ceiling for each isolated asset, limiting the maximum amount that can be borrowed in USD against that collateral.
Sky Governance manages the listing of isolated assets, defining their debt ceilings. Wrapped Ether.fi ETH (weETH) is an example of an isolated asset in SparkLend. [3] [18]
Siloed Borrowing
Siloed Borrowing restricts certain assets with potentially manipulable oracles from being borrowed individually on Spark. Users who borrow a siloed asset are not permitted to borrow any other assets simultaneously. This mechanism helps reduce the risk that these assets pose to the overall solvency of the protocol. [3]
SPK
SPK is the governance and staking token of Spark, created to support long-term sustainability, decentralization, and alignment within the ecosystem. It plays a role in governance through Snapshot-based signaling and sentiment checks, with expanded governance utility planned as distribution decentralizes. SPK can be staked to earn Spark Points and may eventually be used to validate and secure products across the Spark ecosystem. Spark is deployed on Ethereum, Arbitrum, Base, Optimism, Unichain, and Gnosis Chain. Additionally, the Symbiotic protocol offers its rewards to SPK stakers. [5]
Tokenomics
SPK has a total supply of 10B tokens and has the following allocation: [5]
- Sky Farming: 65%
- Ecosystem: 23%
- Team: 12%