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

1. Project Introduction

1. Basic Project Information

Spark Protocol is a decentralized finance protocol focused on stablecoin yields and liquidity. It is initiated by the Sky ecosystem and built by the Phoenix Labs team. The vision of Spark is to create a cross-chain, multi-asset scalable yield engine, intelligently deploying billions of dollars in stablecoin reserves from the Sky ecosystem into various DeFi, CeFi, and real asset opportunities, providing stable returns for token holders. The protocol has been deployed on multiple mainstream networks such as Ethereum, Arbitrum, Base, Optimism, and Gnosis, with the liquidity of stablecoins currently managed reaching the level of billions of dollars. Spark advocates for user-friendly yield solutions, simplifying complex strategies, making the appreciation of crypto assets as simple as bank savings.

2. Project Development History

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

Key Milestone:

• May 2023: The protocol officially launched. The initial core function is to provide an initial, competitively priced lending market for USDS using the direct deposit module.

• End of 2024: Strategic Transformation and the Rise of SLL. Spark Protocol begins strategically developing its "Spark Liquidity Layer," allocating a significant amount of funds in the pool to more stable real-world assets, such as tokenized U.S. Treasury bonds.

• Q1 2025: Multi-chain expansion and ecosystem integration. Spark Protocol leverages cross-chain technology to begin expansion to Layer 2 networks and other public chains. At the same time, SLL actively integrates with other DeFi protocols, building a complex yield strategy matrix.

• June 12, 2025: TVL surges. The total locked value of the protocol skyrocketed in a short period, once exceeding the $8.52 billion mark.

• June 17, 2025: SPK token genesis. The highly anticipated native governance token SPK is officially launched.

3. Project Strategic Positioning

The "commercial bank" of the Sky ecosystem: If the Sky with minting rights is regarded as the "central bank", then the Spark Protocol plays the role of a "commercial bank". It is responsible for efficiently allocating liquidity within the Sky system 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 featured currency market that allows users to supply and borrow various crypto assets with over-collateralization.

• Spark Savings (sUSDS): This is an innovative savings solution where users can automatically earn the Sky savings interest rate by simply depositing USDS into this module.

• 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 in the protocol to multiple blockchain networks outside of the Ethereum mainnet and various high-yield DeFi protocols.

4. Core Team Background

The core team of Spark has been deeply involved in the blockchain finance 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 primary supporter of the Spark Protocol, Sky offers unparalleled resource advantages:

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

• Deep liquidity: Through mechanisms such as 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 key figures such as the founder of Sky.

(2) Development Team: Phoenix Labs

Phoenix Labs is the core contributor team established within the Sky community to carry out 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. Team members mainly include:

• Lucas Manuel (Co-founder): Formerly the Technical Director of a lending platform at a certain institution, responsible for the design and development of the on-chain lending engine. Led the design of the cross-chain liquidity routing architecture in the Spark project, solving the slippage control issue of funds deployed across multiple networks. Holds a Master's degree in Financial Engineering from University College London, with a career beginning in the Fixed Income department of a large investment bank.

• Nadia (Co-founder): A well-known growth strategy expert in the DeFi space, who previously led the ecosystem growth plan for Sky and drove a 300% increase in the adoption rate of USDS on Layer2 networks. Responsible for product design and market expansion in Spark, built a fiat deposit and withdrawal channel connecting CeFi institutions with DeFi protocols.

• Kris Kaczor (Chief Engineer): Expert in blockchain infrastructure and co-founder of a certain Layer2 data analysis platform. He leads the multi-chain deployment implementation in Spark and developed an on-chain state verification mechanism based on zero-knowledge proofs to ensure the secure circulation of funds across dozens of chains. Previously served as a smart contract security auditor at a certain blockchain development company.

2. Business Model

The operation model of Spark Protocol can be understood as a "DeFi super bank" that integrates the deposit and loan business of commercial banks, 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 and efficient asset allocation".

1. Core Operating Mechanism

(1) Privileged liquidity source ( low-cost liabilities ): This is the fundamental asymmetric advantage of the Spark Protocol. Unlike other protocols that primarily rely on market user deposits, Spark can directly obtain initial liquidity of up to billions of dollars at a very low cost from the Sky vault through Sky's D3M mechanism. This is equivalent to having a "parent company bank" that can attract deposits at low interest rates, providing significant flexibility and competitive advantage in asset pricing.

(2) Innovative Interest Rate Model: "Transparent Rate": The Spark Protocol introduces a "Transparent Rate" mechanism for its core asset USDS. This interest rate is not directly determined by market utilization but can be set directly by the Sky community governance. This mechanism provides borrowers with a high level 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 the Spark Protocol is not limited to the interest rate spread between deposits and loans within the SparkLend market, but actively builds a diversified income portfolio through its powerful Spark liquidity layer.

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

• Real-world asset investment: SLL will invest a large amount of idle USDS in the pool into tokenized low-risk, stable-return real-world assets.

• 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.

• Institutions and CeFi Lending: By collaborating with compliant CeFi platforms, Spark will lend part of its funds to institutional traders and market makers in an over-collateralized manner, entering the over-the-counter lending market for cryptocurrencies to obtain wholesale-level lending interest.

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) 2. Business Model Closed Loop

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

• Obtain low-cost, deep liquidity with D3M.

• Configure liquidity in RWA and other high-yield strategies through SLL to generate stable and substantial "real returns".

• Give back this portion of the profits to USDS deposit users, providing the most attractive stablecoin deposit rates in the market.

• High deposit interest 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 spread income.

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

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) 3. Ecological Construction

Spark Protocol is not an isolated application, but is designed to be the first and most important "star" in the Sky ecosystem. Its ecological construction revolves entirely around a core goal: to establish USDS as the "ultimate currency" in the DeFi world.

Core Role in the Ecosystem:

• USDS Liquidity Engine: Spark is the main liquidity outlet for USDS. All newly minted or idle USDS in the Sky treasury can be efficiently injected into Spark via D3M, which then distributes it to the entire DeFi market.

• Sky Savings Rate ### SSR ( implementer: SSR is the core financial product of Sky to attract users to hold USDS. And Spark is the main generator of SSR yields.

• A bastion of multi-chain strategy: Spark utilizes advanced cross-chain infrastructure, serving as the "vanguard" for USDS's expansion into emerging ecosystems. By deploying the SparkLend market on these chains, it has rapidly established currency markets and application scenarios for USDS in new territories.

• Open and integrated connectors: The Spark ecosystem is open. Its SLL continuously seeks to integrate with the most innovative protocols in the DeFi space. This strategy allows Spark to not only capture yield opportunities from external protocols but also indirectly incorporate the users and liquidity of these protocols into Sky's ecological landscape.

• User incentives and community binding: To drive the cold start and sustainable growth of the ecosystem, Spark has designed a sophisticated incentive system. For example, points activities such as "Ignition" and "Overdrive" reward users with Spark Points for various interactions within the ecosystem. These points are ultimately linked to the airdrop of SPK tokens, thereby deeply binding early core users and fostering an active and loyal community.

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) 4. $SPK Token Economic Model

$SPK is the native token of the Spark Protocol, and its design philosophy profoundly reflects Sky's pursuit of long-termism and sustainable development. Unlike many projects that tend to offer short-term high incentives in exchange for false prosperity, the tokenomics of SPK aims to cultivate a community that truly owns the protocol through a smooth, long-term release mechanism.

Total supply of SPK: 10,000,000,000 ###100 billion ( coins, minted all at once at genesis. Core functions include:

• Governance: SPK is the only credential for participating in the governance of the Spark Protocol. Holders can vote on key decisions of the protocol, including but not limited to: launching new assets, adjusting risk parameters, setting or adjusting "transparent interest rates", deciding on the funding allocation strategy of SLL, and managing the use of ecosystem funds.

• Staking ): In future plans, SPK will introduce a staking module. Users can participate in the security assurance mechanism of the protocol by staking SPK and act as a last line of defense in the event of a shortage. In return, stakers will receive a portion of the protocol's revenue or additional SPK rewards.