MakerDAO Contributors Propose First Native Liquidity Market Focused on DAI Stablecoin

The proposed Spark Protocol will leverage MakerDAO’s DAI stablecoin and its crypto assets for liquidity, and would be based on lending protocol Aave’s upgraded smart contract system.

AccessTimeIconFeb 8, 2023 at 8:13 p.m. UTC
Updated Feb 8, 2023 at 8:44 p.m. UTC

Leading MakerDAO community participants have proposed creating a liquidity market called Spark Protocol for lending and borrowing crypto assets focused on DAI, Maker’s $5 billion stablecoin, according to a proposal posted on Wednesday in Maker’s governance forum.

The first product will be Spark Lend, which will allow users to borrow DAI at a set DAI Savings Rate, which currently stands at 1%. According to the proposal, Spark Lend will support highly liquid decentralized assets as collateral such as ETH, DAI and wrapped derivatives of staked ETH (wstETH) and BTC (wBTC). Future features will include fixed-term yield products and the inclusion of Maker’s own synthetic liquid staking derivative (LSD) called EtherDAI.

Spark aims to launch in April by opening a DAI lending vault on Maker with a $200 million debt ceiling, according to the proposal.

Spark would use the smart contract system of Aave v3, the recently upgraded third version of the DeFi lending giant. In exchange, the developer team Phoenix Labs intends to send 10% of the protocol’s profits earned on the Spark Protocol’s DAI market in the next two years to Aave DAO.

Implementing the Spark Protocol is subject to a vote by the Maker community.

A milestone for Maker

MakerDAO is one of the largest decentralized finance (DeFi) protocols, and also issues the $5 billion DAI stablecoin backed by some $7 billion of assets in its treasury. Aave is a top lending protocol, with $7.2 billion of total value locked on the platform. Both protocols are managed by a decentralized autonomous organization (DAO) through voting, where those that hold governance tokens can favor and oppose proposals.

The proposal marks a milestone for Maker as Spark is set to be the first native Maker-based lending interface that any crypto user can interact with, including by connecting their crypto wallets and borrowing directly from Maker, according to a statement sent by email.

Spark aims to bring extra revenue to Maker by its users’ lending and borrowing activity. Maker has been seeking to boost revenue streams by allocating a part of its $7 billion in reserve assets to various yield-generating strategies such as partnering with crypto exchange Coinbase’s (COIN) custody platform and investing in U.S. government bonds. Maker distributes a part of the extra revenue among DAI holders by offering a 1% annual reward, which is called the DAI Savings Rate.

The proposal builds on Maker founder Rune Christensen’s ambitious-yet-controversial “Endgame plan,” which is essentially poised to break up MakerDAO’s management structure into smaller blocks called SubDAOs.

The team behind the Spark Protocol proposal is Phoenix Labs, a recently created company that includes leading figures in the MakerDAO developer community and focuses on building new products on top of the Maker protocol.

“As part of the Endgame plan, multiple competitive SubDAOs are being formed next year with associated tokens that are linked to cash flows from the SubDAO products,” Sam MacPherson, the chief technology officer of Phoenix Lab and a renowned Maker contributor, tweeted.

The Spark protocol will be fully owned by the Maker community. “Once the Creator subDAO model is established, Spark Protocol can be transitioned to one of them,” according to the proposal.


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Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.