Savings DAI (sDAI) is an ERC-4626 token that represents DAI deposited in the Dai Savings Rate (DSR) module, enabling users to earn yield from the Sky Protocol while retaining the ability to use sDAI for transfers, staking, lending, and other decentralized finance (DeFi) functions. ^[1]

Overview

Savings DAI (sDAI) served as an earlier iteration of Savings USDS (sUSDS), functioning as a tokenized representation of DAI stablecoins that were deposited into the Dai Savings Rate (DSR) within the Sky Protocol. This design allowed sDAI holders to accrue yield generated by the DSR while maintaining the flexibility to utilize the token across various DeFi applications. Unlike rebasing tokens, sDAI is an accumulating token, meaning its DAI-denominated value gradually increases over time. Each sDAI token is fungible and can be instantly redeemed for DAI. ^[1]

The yield for sDAI is derived directly from the Dai Savings Rate (DSR), a feature of the Sky Protocol that allows any DAI holder to earn a savings rate on their holdings. To activate this yield, users must deposit their DAI into the DSR smart contract. The deposited DAI remains unlocked and can be withdrawn instantly at any time. The DSR is funded by the Sky Protocol's revenue streams, which include fees from crypto-collateralized loans, investments in U.S. treasury bills, and liquidity provisioning into SparkLend and the Spark Liquidity Layer. ^[1]

Both Savings DAI and the Dai Savings Rate are non-custodial and permissionless smart contracts provided by Sky, and are not issued or deployed by Spark. Spark does not exert any control over the Sky Savings Rate or the sDAI token, as Sky Governance determines the DSR rate and is subject to change. ^[1]

Yield Generation

The core functionality of sDAI revolves around its connection to the Dai Savings Rate (DSR). When DAI is deposited into the DSR contract, it begins to accrue yield, which is paid out in DAI. The sDAI token then represents this yield-bearing DAI. As an accumulating token, the value of sDAI in terms of DAI increases over time, reflecting the yield earned. This contrasts with rebasing tokens, where the token balance itself might change. ^[1]

Users can acquire Savings Tokens, including sDAI, by depositing supported stablecoins into a Savings Vault through the Spark App. The Spark App provides a user-friendly interface for managing deposits and accessing the Sky Savings Rate, offering a transparent Annual Percentage Yield (APY) in USDC. ^{[1] [2]}

Sky Protocol

The Dai Savings Rate (DSR) and the sDAI token are integral components of the Sky Protocol. These are non-custodial and permissionless smart contracts that are offered by Sky, rather than being issued or deployed by Spark. This distinction is crucial as Spark does not have any direct control over the Sky Savings Rate or the sDAI token. The governance of the Dai Savings Rate, including its yield percentage, is managed by Sky Governance. ^[1]

The DSR's yield is generated from various revenue sources within the Sky Protocol, including fees collected from crypto-collateralized loans, returns from investments in U.S. Treasury bills, and income from providing liquidity to SparkLend and the Spark Liquidity Layer. This diversified revenue model contributes to the sustainability of the DSR. ^[1]