Spark 的生意：Sky 最大的子 DAO 如何在熊市赚到 2780 万美元｜收入元叙事

During bull market conditions, the Spark Liquidity Layer generates an enormous amount of money. At the peak, around September of last year, there were about $3 billion in assets deployed, generating upwards of $80 million per year. It was quite significant.

Now that we're pretty—I don't know, maybe this will last for a while—but it feels like we're pretty much at the bottom of the bear market right now. The other side is the distribution rewards. These are incentives paid out by Sky for the distribution of USDS. If we get an exchange or some sort of app to add USDS or Spark Savings, which is backed by USDS, Sky will pay us, as the integrator, these distribution rewards. The vast majority of the revenue right now is coming from these distribution rewards.

This $4.6 billion number that you mentioned is for Spark Savings. This is going toward distribution rewards, which is generating about $18 million per year, or about 80% of the revenue that's coming in.

Sam, thanks for joining us. How are you doing?

Yeah, thanks for having me. I'm doing great.

1. How Spark DAO uses protocol surplus to return value to SPK holders

Sam, great to have you back on again. This will be a bit different from our last episode. This one will be called “Revenue Meta.” We're going to get into all the things that make the business side of Spark tick. We're going to talk about how Spark makes money, buybacks, what's happening with the treasury, and then we want to hear about some of the growth steps needed for Spark to get to that next level.

2. Spark x Sky relationship

Maybe before we dive into the numbers and financials, it's probably a good idea to do a quick rehash of the relationship between Sky and Spark. Can you give us that high-level overview before we get started here?

Sky and Spark are completely separate entities with their own token and their own governance. There are definitely a lot of synergies between them. Sky functions as generic liquidity infrastructure. You can think of it as similar to a central bank that will issue wholesale credit to the sub-DAO layer, or a commercial banking layer, which is where Spark sits.

Spark is, as you said, the first sub-DAO in the ecosystem, but there are now 3, and there will be more sub-DAOs forming. The idea is that the structure of the whole thing is decentralized in that Sky is unopinionated and just provides the same risk framework and rule set under which the sub-DAOs are free to borrow from Sky. The sub-DAOs are free to pursue any growth initiative they think is a good opportunity, and the free market determines what is a good decision and what is a bad decision.

Sub-DAOs will build their own treasuries if they're doing things that are successful. They're really on their own. It is a free market.

I think another useful analogy that I've been using is that Sky is kind of like the American economy. Maybe you're bullish on a particular company in the American economy, or maybe you're bullish on the American economy as a whole. You could think of Sky as the American economy, where there are a lot of different players involved. You can be quite bullish on the American economy, but you could also be quite bullish on a particular company within America. These are synergistic things.

3. Spark products: Spark Savings, Spark Liquidity Layer, SparkLend

I know sometimes when I open up the Spark app, I'm trying to differentiate between, okay, what is the liquidity here that's sitting on Spark but is also shared with Sky? You guys do a great job of productizing all of this liquidity and providing it as a very easy-to-use product.

A few of those products we want to talk through really quickly before we talk about the revenues behind Spark. Can you give us a breakdown of the Spark Liquidity Layer, Spark Savings, and SparkLend? Talk us through how those different products work.

Yeah, sure. I'll start with Spark Savings, because this is the top of the funnel for people to interact with, and this is mostly what people interact with in Spark. Spark Savings is yield on top of stablecoins. You have some USDC, USDT, or USDS, and you want to earn a yield on it, so you can deposit into Spark Savings and Spark delivers this yield. It varies based on the stablecoin, but it aims to deliver the best risk-adjusted yield in the space.

It does heavily lean on USDS's balance sheet. Sky offers what's called the Sky Savings Rate, which is currently 3.75%, quite a bit above what you're getting on lending markets right now. Spark will have deposits in USDC or USDT, back these deposits with USDS, and is able to forward a lot of this yield that comes from the Sky level.

The next layer is the Spark Liquidity Layer, which is what happens with these deposits once they come in. They need to be deployed across the ecosystem. The Spark Liquidity Layer is the most sophisticated at-scale allocation engine in DeFi, allocating $2.3 billion right now. It will allocate across opportunities in DeFi, CeFi, and TradFi.

4. Spark Prime, a CeDeFi prime brokerage

Right now we're in the middle of a bear market, so a lot of the allocation is going into real-world assets or stablecoins that are offering yield, less so on the DeFi lending markets. Funding rates on perpetual futures are kind of the other yield source, and that's pretty low right now. The idea is that it rebalances based on market conditions to deliver the best risk-adjusted yield to the protocol, which then goes to the savings depositors.

The last piece—one of the ways to generate yield is DeFi lending—is SparkLend, a lending market within the ecosystem. It's a top-3 lending market on Ethereum, and it's basically a lending market that's internal to Spark's risk controls, which makes it a more preferential place for us to do lending against ETH, Bitcoin, and assets like that.

Just to give some extra context on scale here: in Savings, as of when we screenshotted what I'm looking at, there was $4.57 billion in Savings. The Liquidity Layer had $2.27 billion, and we had $2.04 billion in SparkLend. These are massive numbers.

5. Team and operations behind Spark

One thing I was thinking about, which I have really no idea about, is how many people behind the scenes it takes to operate a machine like Spark. Maybe you don't have it down to the exact person, but if we were to take all the core contributors and some of the other support teams, what does it take to keep this thing going?

This is one of the beautiful things about DeFi and blockchains: with the tools of automation and security mechanisms, it actually doesn't require a lot of people. These costs can be pretty low. You look at the numbers with Tether, for example—they have on the order of 80 employees. It isn't a lot.

Similarly with us, the core team is 23 individuals, but we have contractors and other service providers. Let's say on the order of about 30 individuals are pretty focused on Spark. I'd say the wider Sky ecosystem is closer to 100 people. For a protocol where the Sky ecosystem overall is about $13.5 billion in TVL across all the different sub-DAOs and Sky itself, that's not a lot.

It's not a huge amount of people, and I think this is where a lot of the efficiencies come in. You compare it to TradFi; there are thousands of people. I think it's on the order of 1,000 people at Circle, for example. So, it's a different beast.

6. How does Spark make money?

Yeah, one of my neighbors—I was talking to him the other day, or just caught him walking around the neighborhood—and he works in private credit. I don't think he fully understands what I work on, but he knows it's related to DeFi. He made a flippant comment about it: “What is DeFi playing around with these days? How much money is in it? It's a few billion now, right?”

I corrected him. There's around 300 billion in just stablecoins at this point, and Spark and Maker are always top of mind for me. The numbers you guys just shared are really impressive, and I think they show where the industry has matured to.

What I'm really excited about, in terms of getting the word out around the progress we're making, is the revenue that you guys are generating. We're no longer at a place where we're just building something that will eventually be able to generate profits for token holders or for protocols in the future. We're there, and again, you guys are leading on this front as one of the trailblazers in DeFi.

Let's talk about how Spark makes money. Whatever you can do to simplify it for us, where does the protocol take a cut in terms of the revenues generated from these different products?

There are 4 business lines generating revenue right now, but I'll go over the 2 bigger ones because they represent the vast majority. They vary based on market conditions. During bull market conditions, the Spark Liquidity Layer generates an enormous amount of money. At the peak, around September of last year, there were around 3 billion in assets deployed, generating upwards of 80 million per year. It was quite significant.

Now that we're pretty—I don't know, maybe this will last for a while—but it feels pretty close to the bottom of the bear market right now. The other side is the distribution rewards. These are incentives paid out by Sky for the distribution of USDS.

7. Spark’s revenue: $23M net returns, $13.6M opex, $9.6M surplus

If we get an exchange or some sort of app to add USDS or Spark Savings, which is backed by USDS, Sky will pay us, as the integrator, these distribution rewards. Right now, the vast majority of the revenue is coming from these distribution rewards. The 4.6 billion number that you mentioned is in Spark Savings, and this is going toward distribution rewards, generating about 18 million per year, or about 80% of the revenue that's coming in.

All right, on that same track, I've just pulled up Spark's awesome website here. It's the Spark Data Hub. If you go over to the Financials tab, there's a ton of financial data about how the protocol is doing.

I've got it pulled up right now, and you can see projected yearly net returns of around 23 million, projected yearly operational expenses of around 13.6 million, and projected yearly protocol surplus of around 9.6 million. I want to dive into each of these, but I think we've keyed in on projected yearly net returns and where that comes from.

I would like to get into the operational expense. One thing I'm always unsure of—and Sam, you can tell me how it is here—is whether that number includes all the yield that the protocol is paying out as well. Is that all included in operational expenses, or is it somewhere else?

No. If you want to go from the very top of the stack, even before net returns, you'll look at total yield generation. This is actually the number that, on DeFiLlama, for example, they'll call fees. This is the total APY being generated.

The net return deducts our cost of capital. The total fees generated could be a very large number, probably on the order of 100-something million. Most of that is being paid to, for example, Sky, because we're a large borrower from Sky. That gives you the net returns.

Operational expenses pay for the teams, marketing, BD, and all these types of activities.

Actually, to take a step back for a moment, in terms of the fees being generated through Spark, can you remind us what those are? That is ultimately what is attracting users to the app and what is going to drive the bottom-line profits that the protocol is taking home.

Just remind us at a high level: what sort of fees are being generated through Spark in terms of the interest being paid to lenders and other folks?

Exactly. To get deposits into the protocol, the lending APY has to be competitive. Spark Savings sits as one layer on top of the Sky USDS Savings Rate, which is 3.75%. Currently, that is being offered on Spark USDC, so you can deposit USDC at a 3.75% rate.

On Spark USDT, it's more on the order of 3%, because there are some differences in yield generation between those 2 assets. This is basically the cost of capital to pay out to the end lenders who are depositing in the protocol.

Sky has a margin on the revenue that goes to Spark. It's actually quite a small margin that Sky charges: 10 bips. At Spark's level, there is a net interest margin. That is the amount represented by the Spark Liquidity Layer line item of the revenue, which is currently quite low, at 4 million a year.

It's still decent, but these margins can be quite massive in bull market conditions, reaching as high as 80 million per year in September of last year.

Sam, just remind me: I always think of sUSDS as the flagship product associated with Maker. The other savings products offered through Spark—you mentioned USDC and Tether—can you remind me what happens under the hood there? I deposit some USDC, and what happens? I deposit some Tether, and what happens?

When you deposit USDC, there is USDS on the back end in our general allocation system that is earmarked for backing those deposits. You get the entire security and insurance system that Sky provides.

Now at over 11 billion in total deposits, USDS is the third-largest stablecoin. This is an absolutely massive balance sheet, so you get these kinds of assurances as a depositor. You're in one of the most robust and tested protocols.

The USDC will move into the general allocation strategy across Sky as a whole. Spark may deploy those funds into some sort of lending market, or it may issue a loan through our partnership with Anchorage. Maybe we can get more into that later.

We'll do institutional loans to institutions that want to borrow at fixed rates through a qualified custodian. There are any number of different ways these funds can be deployed, but it's really a business-like allocation—basically, a balance sheet that can be deployed in general based on the allocation strategy.

Got it. Going back to the revenue numbers, we've got 13.6 million in your yearly operational budget. That's, I guess, paying staff and all the overhead of running the protocol—security audits, monitoring, all that jazz.

Then you've got roughly 9 million dollars left over in protocol surplus, which I'm assuming is discretionary. You can do things with it. I think we'll get more into that, but am I thinking about that correctly? Is it that, right now, you're on a run rate of about 9 to 10 million in protocol surplus profit?

The numbers are correct. I want to dive a little bit into that word “discretionary,” because we are a service provider to the DAO, and ultimately all these decisions go through token-holder votes with SPK.

As a service provider, Phoenix Labs makes proposals, and this is where the discretion comes in from SPK token holders. I just want to be clear about that.

Sam, can you talk about the discussions happening among Spark token holders about what to do with that? Is there talk of returning it to staked Spark holders? Is there talk about using it for growth initiatives? At a high level, what are some of the most interesting ideas being discussed in the Spark DAO?

When the earnings come in, they're retained within the DAO treasury. This treasury is not idle capital. It is used as first-loss capital for the allocation system, the Spark Liquidity Layer, to generate a higher return.

The return on equity inside Spark with these funds is actually quite high. It's on the order of maybe double-digit percentages even in these conditions. It can reach quite ridiculous numbers. Again, bull market conditions are a very special time, but return on equity within the Spark DAO treasury can be as high as 150% APY in bull market conditions, basically allocating or binding that capital as first-loss capital for the allocation system.

Beyond that, there was a proposal that was passed a few months ago for a buyback program. This was in very high demand. Tying the revenue of the protocol to a value-accrual mechanism, I think, is extremely important.

This has now been activated, and buybacks started a month ago. Basically, the calculation is that beyond what Spark needs to operate and what it can deploy through the Spark Liquidity Layer to generate good returns, any excess should go back to token holders. This is the idea of the buyback being tied to the profitability of the protocol. This passed through Spark governance a few months ago.

8. Spark DAO treasury and SPK buybacks

And on that financial site, if you scroll down, you can actually see all the programmatic buybacks, which I think is awesome and provides great transparency. But I want to go back to talking about the treasury for a little bit, because maybe you mentioned this, or maybe this is on the site and I missed it. I'm sure it's somewhere, but what constitutes the treasury? What's sitting in there? I think I see there's around $36 million in there, but is part of that SPK tokens? Is some of it stablecoins? What's the makeup of the treasury that you're sitting on?

That number right there is stablecoins, so these are hard assets. There are also SPK tokens in there as well. Let me pull up the number: about $25 million worth of SPK tokens. But if it's not hard assets, I don't really count that as the treasury. I think it's important to count the hard assets in there.

Getting back to the buybacks, the site says you've bought back around 26.6 million SPK. I think it even gives you the average buy price down there, at a price of .021 cents. What percentage are you attributing to the buybacks? Are you getting any pushback from the community? Are they happy with this amount? What's the general vibe with the buybacks?

Vibes have been quite good. I think it's important for all protocols. There's been a lot of mistrust throughout DeFi—really, in crypto in general—over the past while, and I think it's extremely important to make this solid commitment to value accrual for the tokens, or else they're basically just meme coins. This step—here's the process, here's the calculation, it's all automated, and this is the value-accrual mechanism—I think this signal is quite important, and we're firmly committed to it.

I recall there being a debate more recently that programmatic buybacks, or buyback programs in general, have become popular. They're being demanded by token holders. This is different from many years ago. Five years ago, I don't think anybody was talking about this. This is a change in the industry among token holders. This is, I think, a good change: token holders are demanding much more.

But I've also heard some criticism that these buyback programs might not make sense because certain protocols—I guess I'm not speaking to Spark specifically here—really need to focus on growth, and doing those buybacks is quote-unquote wasted money. I'm wondering, Sam, if you have any other thoughts on why you're confident that these programmatic buybacks are the right approach. Is there any chance that the Spark DAO would consider moving away from them in the future to use that money in other ways to grow the protocol?

I think this is an important question: how much do you spend on growth initiatives versus value-accrual mechanisms in general? I would say the idea behind the proposal in the first place was not to use all the retained earnings for buybacks. There needs to be some level of potential allocation for future growth opportunities.

I think a big mistake that a lot of protocols make in this space is that they're trying to do too many things at once. They grow their teams into massive organizations and try to pursue everything. We run as tight a ship as we can, cover all our bases, and focus on the growth opportunities we know are solid. I don't want to miss out on any opportunity, but once we're covering the market pretty well, we're good.

We're not interested in growing the team beyond that. We're not interested in trying to break into some new market that we know nothing about. We know what we're good at, and we're laser-focused on that. Currently, I'm quite comfortable with the expenses. You can look at the history; it's been pretty stable over the past 8 months or so since we've been operating. I think we're firing on all cylinders, and I think that's all we need.

9. Who are Spark’s customers?

Sam, we're going to get into Spark growth drivers here in a second, but first I want to ask you more about who your customers are today. I've personally noticed that post-October 10, I feel like that was maybe a bit of a retail death moment. I hope it's not forever. I hope retail is coming back. I'm curious whether you think otherwise, but ultimately, who are the customers now? Have you moved into more of an institutional mode, where you're looking more to that frontier, as I've seen many other DeFi protocols do? What are your thoughts?

For us, we've always been very institutionally focused. We've never really been on the consumer side all that much. There is a certain amount of DeFi OGs who like to use the protocols, but for me, the vast majority of the users are on products, and I think this is perfectly fine.

I'm a big subscriber to the DeFi mullet thesis, where blockchains provide very good backend infrastructure and a settlement layer that can be plugged into by these exchanges. Coinbase is a very good example of this. Coinbase has its Bitcoin grow product, and they've also integrated an earn program. This connects into Morpho, which then Spark, as an allocator, and the savings product can plug in on the other side and sort of export this cross-chain yield that is generated.

I view our position as not being on the consumer side at all, nor do I want to compete there. It's a very hard space to break into, and I have no reason to believe that we'll be competitive there. Instead, we're focused on delivering what we do best, which is the most sophisticated DeFi-native infrastructure and yield generation within the space.

What has changed more recently, I would say, is more traditional players coming in. While we were engaged with large users—maybe more so whales and crypto OGs—back in the day, and exchanges have been the institutional users, now you see more traditional players coming in. You see Robinhood getting involved, along with fintech players like Stripe, Revolut, and others. I think this is all just going to merge into finance.

We're increasingly interfacing with banks, too. At this point, it's quite clear that stablecoins are here to stay. You mentioned the $300 billion market cap of stablecoins. This isn't even retracing like in previous bear markets, where it peaks in a bull market and retraces. It's flat during a very bearish period. So this means to me that it's going to spring-load once we go back into more bullish conditions.

And to your question, will retail return? Absolutely. I actually believe a little bit in this 4-year cycle thing. I don't know what exactly drives it. Maybe it's multiple things—maybe it's just human psychology at scale—but we as humans kind of go through these cycles of collective bearishness and bullishness, and they will just repeat, in my view.

I totally agree with you about this opportunity for us to spring forward, with the stablecoin supply potentially exploding by the end of this year. If not this year, I think we're going to hit 1 trillion in stablecoins by at least 2027. Again, we're playing out our usual bear market year, and I think it's real. I think we're living through the typical 12-month timeline, but once we get past that, there's so much growth ahead.

10. Which Spark product is driving more revenue?

Meanwhile, we've got institutional players here now, and they seem to be accumulating tokens and leaning in more in terms of participating in DeFi. I would love to see someone like Robinhood eventually look to offer sUSDS in an earn-vault-type product. It makes sense to me. I think Maker and you guys with Spark have been working on this longer than others, so it makes a hell of a lot of sense.

Going back to revenue around these products, can you tell us more about whether any one of the Spark products is a bigger driver in terms of revenue? If we looked at a pie chart, is it broken out pretty evenly, or is there a certain product that's driving the bulk of the revenue for Spark, the protocol?

As I mentioned, distribution rewards are the primary driver of revenue. It makes sense because Sky is delivering a 3.75% rate, which is above SOFR. If you look at lending markets across the ecosystem, the rates are more like 1.5% to 2% because they're backed by DeFi collateral, and nobody wants to take leverage against their crypto assets as crypto market prices are down or sideways.

With this best-in-class yield, we're really attracting a lot of deposits. This is why you've seen USDS as a whole grow from a little over 8 billion in January. It's grown by 2 or 3 billion; we even hit 12 billion a week or so ago. This growth has been due to the fundamental structure of USDS, with the RWA backing able to supplement the yields.

Basically, as the user, you don't need to ask yourself the question you did last cycle: "Oh, it's a bear market. The yields in DeFi are 1% or something. Do I exit into my bank account and get SOFR from my bank?" I think that's actually a large reason why stablecoin supply dropped during the 2022 cycle, because the capital was exiting to get the better yield that was available in TradFi.

11. Does Sky growth create tailwinds for Spark?

Now you don't have to make that trade-off because with products like Spark Savings, you're basically always able to tap into whatever the good yield is at the time. This is driving a large amount of the revenue right now, but we do have other things on the horizon that we view as significant revenue drivers. If not in the current market conditions, then in more neutral or bullish conditions, which we're quite excited about. Maybe we can chat about that.

I definitely want to get to that in a second, but something else you were mentioning just spurred another thought in my mind, thinking again about the relationship between Sky and Spark. Does Sky growth have any impact on Spark's growth? I know Spark is standalone in many ways, but you're also linked. I'm curious if there's any sort of effect there—if massive Sky growth can also give Spark tailwinds.

Absolutely. Expanding the USDS balance sheet is extremely important when there are opportunities available. USDS just touched 12 billion. It's retraced a little bit, but it's sort of at this 12 billion total-deposits number, which is quite massive. Maybe on the order of 15% to 20% of USDC. It's getting up there.

What this enables all of the sub-DAOs to do is get access to cheaper credit when opportunities are available. This drives a lot on the supply side, where you're able to deploy in these different opportunities because you're not capital-constrained.

Some of the activities that we've been very focused on, especially with this institutional-adoption phase, involve the fact that basically everybody wants to launch their own stablecoin. I think we're going to get a Cambrian explosion of stablecoins, especially when the banks get involved. Everybody will want their own stablecoin to monetize their own distribution.

With this large balance sheet, we're able, as a DeFi-native project, to market-make for all these protocols and bootstrap liquidity. Often they want their own chain, so we're able to go cross-chain and deploy liquidity. We're able to deploy it in whatever stablecoin they want, not necessarily the majors.

Facilitating this liquidity and market-making in DeFi lending protocols and chains is one of our most in-demand products in the current environment. We've seen a lot of growth there. I mentioned the Coinbase integration earlier. We also work with PayPal. We hold about 800 million PYUSD on our balance sheet in cooperation with them, bootstrapping PYUSD within the DeFi ecosystem.

This has been a really big growth sector in the current environment.

It's so strange. Prices are down, I get that, but for me on the ground, it's like I wouldn't even know we're in a bear market. It's just adoption, adoption, adoption by every major player you can think of.

This has been the most bullish bear market I've lived through from a fundamental standpoint, with product after product being released. I really can't say I've seen good players being squeezed out of the market. I know there have been setbacks here and there, but for the most part, the best builders are thriving, and they're just biding their time.

You guys know how you put all of your ducks in a row, and then when the bull market hits—like the spring-loading action you talked about—everything jumps, and we see all this growth.

12. Is Aave’s reputation hit an opportunity for Spark and Sky?

Speaking of that, there has been one major DeFi name that's taken at least a PR hit recently. You guys are all friendly competitors, and I'm wondering, in terms of whatever issues Aave is going through—or call it something deeper than that, because major service providers are leaving—how does that inform your strategy moving forward?

It's a protocol with 20-something billion dollars in Aave V3. As a fellow builder, I feel like DeFi, like traditional finance, is a confidence game. Personally, the last thing I want to see is any sort of infighting or public fallout between service providers and so forth.

We've seen a lot of inflows over the past little bit. We launched a Spark Savings USDT product. Previously, we had no product that was generating yield on USDT in particular. This is something we launched at the end of last year, in November, and we've already seen it grow to just shy of 1 billion in total deposits.

The reason we've seen such large growth is that it's able to deliver a yield that's 75 bps over lending markets right now. It has been as high as 150 bps. As we continue to scale this and optimize it, it comes back to the flexibility of the Spark liquidity-layer allocation system. We're able to deliver this fundamentally higher yield because of the RWA backing.

We find this has been a huge growth sector. We've had a lot of inflows. With regard to Aave, I hope they sort themselves out. I know a lot of the team there. We're competitors, but I try to remain as friendly as possible with competitors. I hope they sort out their issues.

13. Growth drivers for Spark next

Sam, when you're looking out over the next 24 months, what sort of growth drivers are you looking at to take Spark to that next level? Are there any areas where you're thinking, "This is exactly where we want to expand," or any new product lines coming up? Is there anything you've mentioned here today that you want to get into a bit deeper?

One of the big things in the short term is this USDT savings product, which has seen explosive growth. In the past month, it's tripled in size. That's the speed at which things are going.

In the next quarter to 1 year, we're going to be ramping up. We just announced 2 big institutional products in February. The first is Spark Institutional Lending, through our partnership with Anchorage Digital Bank.

Through Anchorage as a qualified custodian, we're able to do the same sort of Bitcoin-backed loans that we've been doing since the beginning of DeFi, basically. It's just instead of on-chain, it's off-chain and through a custodian.

This market is actually much bigger than the DeFi lending market. DeFi lending against volatile crypto collateral on-chain accounts for about $10 billion in loans. Most of that is on Aave. The off-chain component is more on the order of $25 billion to $30 billion, so it's a pretty big market. Now we're able to get access to this.

There are a number of reasons why institutions aren't quite ready to come out on-chain yet. Some do, but still, a lot don't. We want to be able to service these users. The reasons include fixed rates, KYC/AML compliance, as well as liquidation terms that are a little more favorable for the borrower.

A lot of institutions still like this white-glove experience, where you actually get a phone call for a margin-call situation. You get 24 hours. These types of services on-chain still aren't quite there. I think on-chain is the way things are going, but we want to operate in the environment that works right now.

The other major product that we're looking to scale in the near future is Spark Prime, which is a CeFi prime brokerage. This allows primarily hedge funds executing things like the basis trade to borrow from Spark and margin their positions across DeFi, qualified custodians, centralized exchanges, as well as Hyperliquid and other decentralized exchanges.

This drastically improves the capital efficiency of these hedge funds. Our estimation of who the borrowers against volatile crypto collateral in DeFi are is about 30% hedge funds. The rest is some mix of things like leveraged traders and whatever else. About 30% of the borrowing from major lending markets comes from hedge funds basically accessing cheap capital.

With Spark Prime, we're able to massively improve their capital efficiency so that they're able to earn a much better return doing things like the basis trade. This is great for the borrower, but it's also much better for the lender.

The status quo before this has been that, to access things like the funding rates of perpetual futures, you would deploy into a tokenized hedge fund, basically. This is effectively an unsecured loan into an equity position, which is not ideal. I think it's worked to bridge the gap for a little bit, but with Spark Prime, much like DeFi lending, these positions are overcollateralized. The collateral remains in the custody of the prime brokerage rather than the borrower.

It's not, "Trust me, bro. I'm going to take your funds, and we'll do whatever. I don't quite know what's going on, but trust this guy and they'll give the funds back." We don't have to have this level of trust. It drastically reduces the counterparty risk.

I think this is going to be quite a huge product, scaling to many billions of dollars. It'll be more important in a bull market, but it still is useful in current market conditions.

14. Sam’s growth goals for 2026

Very cool. A lot of interesting stuff there. I can't wait to see it play out. I have another question for you. Have you set any sort of personal goals, like, "I want to hit this much revenue," or "I want the platform to hit this much revenue"? Are there any internal growth goals that the team is aiming for for the rest of 2026 or beyond?

Some of this is dependent on the market. I think the metric that I'm most confident we're going to hit is the growth of Spark Savings USDT, because the path to growth there is quite clear.

We think this will be the largest pool for USDT lending by the third or fourth quarter, based on the growth trajectory we're on, and specifically because of the superior yield-generation mechanism. This isn't risking anything, as I mentioned. It's just the fact that, as opposed to lending markets that don't have access to real-world-asset yield, where the rates can go as low as zero, there's really nothing to prevent that if borrowing demand dries up.

The floor is basically—not exactly SOFR, but it's closer to that number. This is really where we've seen a lot of growth, and where I'm quite confident we're going to be hitting decent numbers toward the third or fourth quarter.

And, Sam, that's referring to the roughly $886 million in Spark Savings USDT, right?

Yeah, we want to grow that to $2 billion, $3 billion, or $4 billion.

15. Closing

I think this is a great place for us to wrap up. So great to have you back on the show. It's encouraging to see all of the growth that Spark continues to see despite the bear market that we're in. Again, we're really excited for what happens when we have those tailwinds from the next bull run, or whatever uptrend starts back up.

Sam, thank you so much for your time. I want to give you the final word before we go.

Thanks for having me. As we said, this is probably the easiest bear market I've ever been through, and I've been through a few of these. I think it's the same with you guys. It's not really an if in this one; it's when.

Institutions are coming in in full force, and I expect this to accelerate in a big way in the next year. Your estimate of $1 trillion in stablecoins by the end of the year, I think, is completely plausible. I have no doubt this is going to happen. It's just maybe a year, maybe 2 years, but it's coming in a big way.

We're really excited, and Spark is in a very key spot to serve as the entry point for these institutions to come on-chain, really holding their hand and explaining how DeFi works. We found a really good fit here, and we want to embrace and assist the future. It's not DeFi anymore; it's just finance. Finance will simply be conducted on blockchains.