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Reported by The Block: Spark Protocol, the lending subDAO in the Sky ecosystem, is allocating up to $1.1 billion of the Spark Liquidity Layer balance sheet to Ethena’s USDe and sUSDe tokens.
The team estimates it could earn approximately 27% APY “during favorable market conditions,” helping drive revenue to Sky and maximizing returns for Savings USDS depositors.
Sky (formerly MakerDAO) subsidiary Spark Protocol is integrating Ethena’s USDe synthetic dollar into its “liquidity layer,” the protocols’ teams announced on Tuesday. As part of the partnership, Spark plans to allocate up to $1.1 billion of its balance sheet to Ethena’s yield-bearing tokens to enhance “capital efficiency.”
USDe, launched in early 2024, is a unique product in the stablecoin space, given that it maintains its peg to the greenback through an algorithmic basis trade. It has rocketed up to become the fourth-largest stablecoin in part because, like other onchain stablecoin products and unlike corporate-backed assets like tether, it pays users returns on their holdings.
Prior to this latest move, the Spark Liquidity Layer balance sheet was limited to Circle’s stablecoin and Sky’s and sUSDS tokens. Spark estimates it could earn approximately 27% APY “during favorable market conditions” by directly onboarding Ethena’s USDe and sUSDe tokens into its portfolio.
“The addition of Ethena showcases Spark’s commitment to innovation and scalability,” the Spark team wrote in a blog post. “By enhancing liquidity management and revenue generation, Spark solidifies its vision of becoming the yield engine for DeFi.”
This is Spark’s first step toward additional proposed protocol allocations through its Spark Liquidity Layer, the multi-chain system launched late last year to make it easier to access Sky’s yield-bearing savings USDS stablecoin through other DeFi protocols, the team said.
“With the integration of Ethena’s USDe and sUSDe into its balance sheet, Spark adds a major yield opportunity to its infrastructure — ready to maximize returns for Savings USDS depositors and the Spark ecosystem,” the Spark team said.
The Spark Liquidity Layer, which manages $6.2 billion in stablecoin liquidity, enables users to convert Circle’s USDC stablecoin into Sky’s USDS or the yield-bearing “Savings USDS” (sUSDS) stablecoin on supported networks of their choice. Savings USDS pays a stable rate determined by Sky’s governance DA. The current rate of around 12.5% is supported by Sky’s revenue streams, including over-collateralized DeFi loans and real-world investments.
USDS, currently the third-largest stablecoin by market cap, is fully convertible to MakerDAO’s original dollar-pegged token dai, which has dropped down as the fifth-largest stablecoin.
Spark has had exposure to Ethena’s USDe and sUSDe tokens since March through its overcollateralized Morpho vaults. In December, the protocol’s DAO mulled adjusting its risk exposure to the network.
“Given the significant growth of Ethena in the past months, with current USDe supply now higher than USDS, we recommend adopting a tighter total exposure threshold of 20% of USDe supply,” the team wrote, noting that equated to around $1.05 billion worth of USDS.
Meanwhile, Ethena claims to have contributed approximately $120 million in annual revenue to the Sky ecosystem. In December, Ethena submitted a bid to enter its new USDtb stablecoin into Spark’s $1 billion Tokenization Grand Prix, the competition aiming to onboard real-world assets into DeFi by offering capital to selected participants. The USDtb token is ultimately backed by U.S. government bonds via BlackRock’s BUIDL fund.
Spark was spun out of MakerDAO as part of the protocol’s founder Rune Christense’s “endgame” plan. This plan aimed to boost ecosystem returns by launching semi-independent “subDAOs” that would function like startups. Since its launch, the Spark money market has contributed approximately $232 million in annual revenue to the Sky ecosystem.
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