What is Spark Protocol?
👋 New to this? Just start reading at the top — it begins in plain English and gets more detailed as you scroll. Jump to any level:
🟢 The simple version
Plain English — no jargon. Start here.
Spark Protocol is a lending market built by MakerDAO (now Sky) that lets users borrow DAI directly at the DAI Savings Rate, deposit stETH and other collateral to borrow DAI, and earn DSR yield through sDAI — making it the official lending frontend for the MakerDAO/Sky stablecoin ecosystem.
Spark's relationship to MakerDAO/Sky
MakerDAO (which rebranded to Sky in 2024) is the protocol behind DAI — Ethereum's oldest and largest decentralised stablecoin. Spark Protocol was built by Phoenix Labs (a team funded by MakerDAO) as a dedicated lending market for DAI, launching in May 2023. It is the "SubDAO" for lending in the MakerDAO/Sky ecosystem.
The key insight: Spark can borrow DAI directly from MakerDAO at the DAI Savings Rate (DSR) — not from a pool of lenders. When a Spark user borrows DAI against their ETH or stETH, Spark mints new DAI from MakerDAO at the current DSR interest rate. This gives Spark a cost-of-funds advantage over other lending protocols that must attract lenders to supply DAI at market rates.
sDAI — the yield-bearing stablecoin
sDAI (Savings DAI) is an ERC-4626 vault token representing DAI deposited into the DAI Savings Rate contract. When a user deposits DAI into the DSR, they receive sDAI. As DAI interest accrues (from borrowers paying interest to MakerDAO), the DSR increases the DAI value of each sDAI. sDAI is the DeFi-native way to hold DAI that earns yield automatically — widely accepted as collateral across DeFi (Aave, Morpho, Pendle) due to its stability and yield properties.
What SPK does
SPK is Spark's governance token, distributed to Spark users as the protocol's activity grew. Total supply: 10 billion SPK. SPK holders govern Spark's risk parameters and market decisions independently from MakerDAO's MKR/SKY governance.
Is it legal in India?
Yes. SPK is a VDA under Indian law. 30% tax and 1% TDS apply. See India regulation.
🟡 A bit more detail
For when you want to go a little deeper.
Spark's architecture — Aave v3 fork with direct DAI access
Spark is built on Aave v3's codebase — the same lending pool architecture as Aave, with its health factor model, liquidation mechanics, and oracle infrastructure. The key modification: Spark integrates directly with MakerDAO's "D3M" (Direct Deposit Module), allowing Spark to borrow DAI from MakerDAO at the DSR rate rather than sourcing DAI from external lenders. When utilisation on Spark's DAI market is high and borrowers are paying more than DSR, MakerDAO automatically deposits more DAI into Spark to capture the rate difference. This D3M connection makes Spark the most capital-efficient DAI lending market.
Spark quickly became the largest DAI borrowing venue on Ethereum. Borrowers deposit stETH, wstETH, or ETH as collateral and borrow DAI at DSR-competitive rates. sDAI has been listed as collateral on Aave v3, Morpho, MarginFi, and many other protocols — making it a widely held yield-bearing stablecoin. The Spark Liquidity Layer (SLL) extends Spark to multiple chains (Arbitrum, Base, Optimism) by deploying cross-chain DAI liquidity. Institutional users particularly value sDAI for its transparent, on-chain yield accrual backed by MakerDAO's established stablecoin infrastructure.
The DSR mechanism — how sDAI earns yield
The DAI Savings Rate (DSR) is set by MakerDAO governance. When the DSR is 5%, every 1 DAI deposited in the DSR earns 5% annually. The yield comes from: borrower interest payments to MakerDAO (from Spark and other protocols using MakerDAO's D3M), and yield on MakerDAO's RWA (Real-World Asset) investments (US Treasury bills, corporate bonds held in off-chain trusts). MakerDAO's diversified revenue streams mean DSR can offer competitive yields even when on-chain lending rates are low.
Key Spark metrics: total DAI borrowed (Spark's demand-side health), sDAI TVL (yield-bearing DAI adoption), DSR rate vs competing yields (competitive positioning), cross-chain liquidity depth, and SPK governance participation. Spark's fundamental advantage — direct DAI minting at DSR — is structural and cannot be replicated by protocols that must attract DAI lenders. Live data: CoinGecko · Spark.fi.
🟣 The full technical picture
For the technically curious.
The D3M — Direct Deposit Module architecture
MakerDAO's D3M allows DAI to be deposited directly into external protocols when their utilisation creates a rate above DSR. The D3M monitors Spark's DAI borrow rate. When Spark's borrow rate exceeds DSR + a spread, the D3M deposits more DAI into Spark (increasing supply, reducing rates). When the borrow rate falls below the target spread, the D3M withdraws DAI. This automatic supply management keeps Spark's DAI borrow rate stable near the DSR target, providing predictable borrowing costs for users and efficient DAI deployment for MakerDAO.
Source: Spark documentation. docs.spark.fi · MakerDAO/Sky documentation: docs.sky.money
sDAI technical implementation
sDAI is a standard ERC-4626 vault wrapping the DSR pot contract. When a user deposits DAI into sDAI: the DAI is sent to MakerDAO's DSR Pot contract, and sDAI shares are minted at the current exchange rate (totalAssets / totalShares). As the DSR accrues, the Pot's DAI balance increases, increasing the exchange rate. When a user redeems sDAI, the shares are burned and DAI (including accrued yield) is withdrawn from the Pot. The ERC-4626 interface means sDAI integrates automatically with any protocol supporting the tokenised vault standard — deposit, withdraw, and previewRedeem functions work identically to any other yield-bearing token.
Spark's integration with Sky's "Endgame" vision positions it as the primary lending SubDAO. Under MakerDAO/Sky's Endgame plan, Spark operates as an independent SubDAO that forks MakerDAO's governance in exchange for protocol revenue. Spark retains a percentage of the interest revenue it generates on behalf of MakerDAO/Sky, using it to fund its own development and SPK token distributions. This revenue-sharing model creates alignment between Spark and Sky without requiring Spark to fully depend on Sky governance for day-to-day decisions — an innovative SubDAO structure that influenced subsequent MakerDAO/Sky governance design.
Key facts
- Type: MakerDAO/Sky lending SubDAO
- Architecture: Aave v3 fork + D3M (direct DAI access)
- Key product: sDAI (ERC-4626 yield-bearing DAI)
- DAI source: Direct from MakerDAO at DSR rate
- SPK supply: 10 billion
- Launched: May 2023 (Phoenix Labs)