Spark's Pivot: From DeFi Lending to RWA Deployment
In this episode of WuBlockchain Podcast, Sam MacPherson, co-founder of Phoenix Labs, shares how Spark has evolved from a DeFi lending protocol into a $4B capital allocator spanning DeFi, CeFi, and RWA. He explains the Spark Liquidity Layer’s role in optimizing yield — especially through tokenized U.S. Treasuries — while maintaining a 25% cash reserve to ensure stability. Sam discusses the platform’s modular governance via the Sky-Star system, its push into the APAC market, and the upcoming SPK token launch for staking and governance. Transparency and on-chain auditability remain Spark’s core strengths over traditional finance.
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Brief Introduction to Sam MacPherson & Spark
Sam: Hello everybody. I’m Sam MacPherson, CEO and co-founder of Phoenix Labs, and we’re contributors to Spark. Spark exists within the Sky ecosystem, and although it’s not a perfect analogy, it’s helpful to think of Sky as a central bank that issues currency, while Spark acts more like a commercial bank that handles actual loans and growth initiatives for the protocol.
There are multiple subDAOs, also known as “Stars,” connected to Sky and to us. Each of these Stars has equal access to borrow from Sky Wholesale and then lend out to the broader ecosystem. Each Star retains the net interest margin as revenue. Spark is currently the first and largest of these Stars, but more will be launched in the future, creating a competitive environment.
Why Did Spark Pivot from a Lending Protocol to a Broader Capital Allocation Platform?
Sam: Yeah, so just to give some context — Spark originally launched in May 2023 purely as a lending protocol. But since then, we’ve transitioned toward a newer product called the Spark Liquidity Layer, which was launched at the end of last year and has already seen significant growth. We’ve deployed $3.9 billion in assets with an APY of 4.95% at the time of this recording.
The reason for this pivot is that traditional lending markets are somewhat limited. They’re still useful, which is why Spark Lend, our internal lending market, remains one of the destinations for the Liquidity Layer. However, the Liquidity Layer is a broader mechanism that allows us to allocate capital across DeFi lending, CeFi lending, and traditional finance lending — also known as real-world assets (RWAs). This includes things like tokenized Treasury bills and corporate debt.
Our main goal is to generate the best risk-adjusted yield for depositors in Spark Savings. The current yield — 4.95% on $3.9 billion — is quite strong and can outperform traditional DeFi markets. That’s ultimately why we decided to shift our strategy in this direction.
Why Did Spark Allocate an Additional $1 Billion to Tokenized U.S. Treasuries?
Sam: Yeah, so Spark is responsible for deploying Sky’s balance sheet. When there’s excess capital sitting in stablecoins, it makes more sense to allocate that surplus into tokenized Treasury bills to enhance overall yield. For example, the yield on stablecoins is typically around 3.8%, whereas tokenized Treasury bills can offer closer to 4.2%.
That extra 40 basis points of yield is meaningful when scaled, and again, our primary objective is to deliver the best risk-adjusted return for users. Tokenized Treasury bills essentially wrap the risk-free rate of U.S. dollars, so allocating surplus capital into them is a logical move to maximize yield for our users.
What Market Conditions Made This Timing Ideal for RWA Deployment?
Sam: Yes. Market conditions are Starting to shift toward a more bullish trend, but in bearish markets, real-world assets (RWAs) become increasingly critical. The way the balance sheet operates is that when the market is bullish, capital typically flows into DeFi loans or is used to fund rates on centralized exchanges. More users want to borrow against their assets to leverage up and acquire more crypto like Bitcoin or Ether.
So there’s a natural balance — during bull markets, capital is deployed more into DeFi loans, and during bear markets, RWAs become more relevant because DeFi demand decreases. At the moment, although the market is showing some bullish signs, it’s not fully bullish yet. That’s why we still maintain a significant portion of the balance sheet in RWAs.
How Does Spark Reconcile DeFi Decentralization with Centralized Custodians?
Sam: Right, so decentralization is kind of an overloaded term. I think what matters more is examining the specifics of how the protocol is built. For example, governance is structured to be decentralized throughout the entire Sky-Star system.
When it comes to actual capital allocation, most things in DeFi already involve some kind of custodian. RWAs are a broad category, and they include stablecoins like USDC and USDT — both of which have custodians. I think that’s acceptable in practice. The real value DeFi brings isn’t necessarily the removal of all intermediaries, but rather the benefits of transparency and auditability.
With USDS and Spark, users can see a complete breakdown of where every dollar is deployed. That kind of transparency is incredibly important for users who want to understand where their funds are going. This is a major advantage that DeFi systems have over TradFi, where asset flows are typically more opaque and harder to audit.
What Return Profile Does Spark Target, and How Does It Compare to Treasury Yields?
Sam: Yeah, so our goal is to at least outperform the Treasury market — that’s our baseline yield. As I mentioned before, U.S. Treasury bills are generally considered the risk-free rate for dollar-denominated assets. So, in my view, any U.S. dollar-yielding product should aim to deliver a return around that rate.
Spark’s objective is to meet or exceed that benchmark. In current market conditions, we’re outperforming Treasuries by roughly 50 to 60 basis points. And when the market becomes more bullish and the balance sheet shifts more toward crypto-leverage-type loans, yields can rise significantly. For example, during the last bull cycle about six months ago, returns peaked at 15%.
Why Did Spark Double Down on Existing Treasury Partners like BUIDL, USDY, and STBT?
Sam: Yeah, so these are among the top tokenized Treasury bill products in the industry, and we already have existing relationships with them. It made sense to allocate more capital to partners we know and trust. They’ve been great collaborators, and we were able to negotiate fees down to very competitive rates. So, from our perspective, it was logical to continue working with the same providers.
How Did the Tokenization Grant Competition Influence Partner Selection?
Sam: Yeah, so the tokenization grant program was essentially a contest we launched around this time last year, and it concluded in March of this year. The primary qualification criterion we evaluated was fees — most of the applicants, and there were over 30 of them, were competing based on cost efficiency.
Another major factor was partner quality. For instance, BlackRock is a highly reputable name, and partnering with top-tier institutions like them was a key consideration. Ultimately, the three partners we selected were well-known, respected brands in the industry, and they also offered very competitive fee structures.
How Do Tokenized Treasuries Help Stabilize DeFi Yields?
Sam: So, as I mentioned earlier, when DeFi rates are high, Spark allocates more capital into DeFi loans. But when those rates drop — typically during bear markets — tokenized Treasuries become extremely important. They allow us to pass on the U.S. risk-free rate to stablecoin holders, which helps maintain attractive and stable yields.
This dynamic allocation ensures that returns are optimized across market cycles. It’s a key reason why the Spark Liquidity Layer can outperform traditional DeFi lending markets.
What Sets Spark Apart from Competitors?
Sam: Yeah, Spark has been around for a while now. I would say our key differentiators are trust and scale. Maker is one of the original DeFi protocols — it launched in 2019 as the first major stablecoin platform. My team and I have been working in the Maker ecosystem for a long time, so we have deep experience with smart contracts, safety, due diligence, and underwriting. We’ve never had any major incidents, and that strong track record really matters. It’s part of why we now manage around $7 billion in total deposits, making us the third-largest stablecoin protocol today.
To me, that’s a core competitive edge. But we’re always working to further optimize our processes. On-chain transparency and auditability are huge differentiators we focus on. When you invest in a Spark savings product, you can see exactly where every dollar is going — down to the last cent. That level of detail contrasts sharply with the black-box nature of many traditional finance systems, where users just have to trust that their money is being handled properly.
How Does the Spark Liquidity Layer Operate and Integrate Across the Ecosystem?
Sam: The Spark Liquidity Layer is central to everything we do — it’s our major innovation, and we’ve been scaling it rapidly. As I mentioned, it only launched at the end of last year, and we’ve already deployed $3.9 billion in assets through it. These funds are being allocated across a variety of opportunities. That includes DeFi money markets like Spark Lend, our internal lending market, as well as Aave, Morpho, and Fluid. We’ve also ramped up deployment into Treasury bill yields.
Another recent integration is with Coinbase’s Bitcoin borrow product, which connects through Morpho. Spark now supplies about 80% of the capital to that market. What’s interesting is that these are new users — not typical DeFi participants. They’re using the Coinbase app directly, getting loans against their Bitcoin at competitive rates, and Spark is powering the backend via the Liquidity Layer.
Another exciting development is our entry into crypto OTC lending. Some users — typically institutions — prefer borrowing against Bitcoin but don’t want to do it on-chain yet. So we’ve become major depositors into Maple Finance, which is an RWA protocol bridging DeFi and CeFi. We’ve deployed $200 million there, generating solid yields from borrowers who custody their Bitcoin off-chain and seek loans against it.
How Does Spark Manage Risk and Maintain Yield Stability with High Cash Reserves?
Sam: Yeah, this is a very important consideration — arguably one of the most critical for any stablecoin protocol. Maintaining a liquid cash reserve is essential to allow users to redeem back into fiat whenever they need to. This effectively supports the stablecoin’s peg. As I mentioned earlier, Maker has been around for a long time, and this kind of risk management is our bread and butter. We’ve successfully maintained the peg through both euphoric bull runs and devastating bear markets, which speaks to the robustness of our system.
Sky sets a cash reserve requirement that all Stars, including Spark, must follow. We maintain a 25% cash reserve on our balance sheet, which is an intentionally conservative number. For comparison, traditional banks typically operate with only about a 10% reserve. The reason we keep ours at 25% is due to the extreme volatility of crypto markets. We need to ensure that users can always redeem their stablecoins when they need to.
Despite this conservative reserve ratio, Spark has still been able to generate strong APYs, which is a testament to the efficiency and resilience of our platform.
How Has Spark Demonstrated Resilience During Past Market Crashes?
Sam: Yeah, we’ve had a lot of experience dealing with extreme market events over the years. And honestly, as the crypto markets mature, these events are becoming less extreme over time. One of the most significant examples was the 2022 market crash. That period included several major incidents — the most notable being the Terra Luna collapse.
Despite the scale of the turmoil, we managed to navigate through it smoothly. During that time, we saw around $2 billion in redemptions over the course of about three days. That represented roughly 20% of the DAI supply at the time, and yet the protocol had no issues absorbing that level of redemption.
I think this really highlights the strength and resilience of our overall strategy.
How Important Is Regulatory Compliance in the RWA Interface and Protocol Design?
Sam: Yeah, regulatory compliance is extremely important — especially when it comes to real-world assets. The interface between DeFi and RWAs is unique because it brings together two distinct frameworks. I believe RWAs should be designed to be very straightforward — like a wrapper on a tokenized Treasury bill or tokenized gold, for example. The regulations around these should be strict but simple and easy to follow, precisely because the actual mechanics are relatively simple: you custody an off-chain asset and mint a corresponding token on-chain.
Once you’re on-chain, a different set of guarantees applies. That’s where smart contract enforcement comes in, and in my opinion, it’s one of the strongest forms of assurance you can have. Combined with transparency, this creates a system that is, in many ways, more robust than traditional finance.
What Is Spark’s Next Target in RWA Investments Beyond Tokenized Treasuries?
Sam: So the next likely candidate is corporate debt — specifically AAA-rated, investment-grade corporate paper. If you’re operating a U.S. dollar interest-bearing product, the strategy generally involves pushing out on the risk curve, as long as it’s done in a reasonable and safe manner.
Treasury bills are essentially the lowest-risk instruments available. From there, you can either extend in duration or take on slightly more risk. Corporate debt is the logical next step up in terms of yield and scalability. Beyond that, I think we’ll Start to see movement into areas like private credit.
We’re going to see a lot of interesting diversification among the Stars, and each one can explore different opportunities, as long as they operate within the Sky Risk framework.
What Is Spark’s Strategy for Community Outreach and Expansion in APAC?
Sam: Yeah, Spark is running several programs across the Asia-Pacific region. For example, we have dedicated Telegram groups for Korea and are conducting extensive marketing and community outreach there. We’ve been actively engaging with local communities and collecting feedback.
We’re also running a “Snaps” program on X (formerly Twitter), where users can participate and earn points. The response from the APAC community has been overwhelmingly positive, and we’re really excited to continue investing in and growing our presence in that region.
How Does the Modular Star System Enhance Governance and Scalability?
Sam: Yeah, so this all stems from what was formerly known as MakerDAO, now called Sky. Previously, the entire governance structure was centralized within a single DAO, and that model just didn’t scale well. The new modular setup — the Star system — is far more optimized for real-world operations.
In this system, Sky acts as the central component and issuer, but it only sets general rules and the overarching risk framework. Each Star, like Spark, is independently responsible for its own operations — as long as it adheres to that risk framework.
This structure gives Stars like Spark the flexibility to move quickly. For example, Spark can onboard new collateral types and integrate new protocols with remarkable speed. Even though the Spark Liquidity Layer has only been live for six months, we’ve already deployed $3.9 billion and tapped into most major lending opportunities across DeFi, CeFi, and TradFi.
This shows how responsive and agile the Star system can be, while still maintaining a decentralized structure overall.
How Does Spark Adapt to Macro Trends Like U.S. Interest Rate Shifts?
Sam: Yeah, this is a very interesting question. Right now, crypto markets are primarily driven by bull and bear cycles. DeFi lending rates largely reflect the demand for leverage on crypto assets like Bitcoin and Ether. So, like everyone else in DeFi, we’re exposed to those cyclical conditions.
However, we’re increasingly looking to expand into yield sources that aren’t correlated with crypto cycles. That’s where RWAs come in. Treasury bills serve as our base yield, but instruments like corporate debt can offer additional yield that’s tied more closely to broader macroeconomic factors — like interest rates — which move at a slower and more predictable pace.
Given the current high interest rate environment, it makes a lot of sense to allocate a significant portion of our balance sheet to RWAs. Spark is designed as an all-weather system, so regardless of market conditions, we’re always working to optimize our yield sources across every opportunity available.
What Can Users Expect from the Upcoming SPK Token Launch?
Sam: Yeah, we’ve got a lot happening, and one of the most exciting developments is the upcoming token launch. We’re really looking forward to giving back to the community that has supported us for so long.
With the SPK token, users will be able to stake it and participate in governance. We believe this opens up a new and exciting avenue for users to get more involved in Spark. We’re very excited about this launch and can’t wait to roll it out.
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