Introducing Spark Protocol: MakerDAO’s Decentralized Lending and Borrowing Platform

makerdao-logo Spark Protocol DSR

MakerDAO, a leading figure in the decentralized finance (DeFi) space, has recently unveiled its latest innovation: Spark Protocol. This state-of-the-art lending and borrowing system is designed to provide end-users with a seamless, DAI-centric DeFi experience built on the Ethereum network.

Spark Protocol’s Core Features and Offerings

Spark Protocol comes equipped with supply and borrow functionalities, supporting a variety of digital assets, including ETH, stETH (Lido staked ETH), DAI, and sDAI. The first product launched under the protocol is Spark Lend, a marketplace focusing on lending and borrowing cryptocurrency using DAI, MakerDAO’s native stablecoin.

In a tweet, MakerDAO highlighted the user-friendly nature of Spark:

“Users will be able to interact with Spark’s front-end directly, connecting Maker’s liquidity with a complete DeFi solution.”

As part of the Spark Lend platform, MakerDAO has introduced a tokenized version of DAI deposited in the DAI Savings Rate (DSR) known as sDAI. Currently, yields on DAI deposits are relatively low, offering just 1.1% returns. 

Despite these low yields, DeFi users have become increasingly cautious of unsustainable yield promises and elevated risk levels. As a result, Spark Protocol prioritizes stability, liquidity, and reduced risks, aligning with MakerDAO’s vision for the future of DeFi.

Spark Protocol’s Connection to Maker’s D3M and PSM

Spark Protocol is closely connected to Maker’s D3M (Direct Deposit Module), a liquidity balancing system that utilizes DAI to maintain liquidity within Spark Lend. The platform also features a Peg Stability Module (PSM), connecting the liquidity infrastructure for instantaneous swapping of DAI and sDAI with USDC.

Spark Protocol is a critical component of MakerDAO’s Endgame plan, which aims to transform DAI into a free-floating asset initially collateralized by real-world assets (RWA). According to the plan, DAI will remain pegged to the US dollar for three years, during which MakerDAO intends to amass as much Ethereum (ETH) as possible to boost the ratio of decentralized collateral.

As it stands, DAI is the fourth largest stablecoin, with a circulating supply of $4.7 billion, accounting for a 3.6% market share. That makes DAI the largest decentralized stablecoin in the industry. However, the DAI supply has experienced a 53% decline since its peak of nearly $10 billion in February 2022.

MakerDAO’s DeFi governance token, MKR, has experienced a significant drop of 89% from its all-time high of $6,292 in May 2021.

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