MakerDAO's Spark Protocol: A Game Changer for DeFi
As stablecoins continue to fall under intense scrutiny following the collapse of TerraLUNA in 2022, MakerDAO has come out with the latest DeFi lending protocol yet called Spark Protocol focused on its own stablecoin, DAI.
The new DeFi platform is expected to help expand the capabilities of DAI as it gives more web3 users access to additional financial services with a stablecoin that is only soft-pegged to the US dollar. This gives the coin more flexibility as it prepares for increased activity from the Spark Protocol.
Spark Protocol: A New Lending Marketplace
Spark begins as a lending and borrowing protocol similar to AAVE and Compound which allow users to deposit and withdraw assets into liquidity pools for other users to borrow from using their own liquidity as collateral.
This gives users the ability to leverage their trading abilities which can result in more gains at a higher risk. Further, it gives businesses the ability to take out loans to help fund their progress without relying on traditional banking services for additional liquidity.
Spark's Connection with Maker's D3M
One crucial component of the Spark Protocol is its connection to D3M which was also developed by Maker. D3M is a direct wholesale line of credit used to supply Spark with fresh DAI liquidity routinely in order to provide the best rates to customers.
This also allows users to take out loans on credit at an annual rate of 1.11%, opening them up to even further financial opportunities. However, it is important to note that Maker does state that the annual rate will not change due to utilization.
Maker’s New Token: Savings DAI (sDAI)
Maker added additional incentives to the Spark Protocol as well by giving users access to a new token called Savings DAI (sDAI). This token is linked to deposits made into the Dai Savings Rate Module and bears a yield that users can take advantage of.
Currently, the rate for sDAI yield-bearing is 1.00%. However, this is subject to change as on-chain governance proposals within MakerDAO can be approved via a vote to change the rate percentages, giving further value to Maker’s governance token, MKR, which is currently priced at $664.
Connections with USDC and Chainlink
While the Spark Protocol is primarily built around the DAI stablecoin, Maker has also made sure to incorporate other stablecoins with their Peg Stability Module (PSM). This module provides users with a 1:1 rate between DAI, sDAI, and USDC.
Chainlink has also partnered with Maker to supply Spark Protocol with updated price feeds. This injection of additional data from Chainlink’s oracle network will help catalyze further development of the Spark protocol with additional infrastructure.
Johann Eid, a VP at Chainlink Labs, stated "The ongoing collaboration between Chainlink and the Maker ecosystem is a huge win for DeFi. Both Chainlink and Maker are pioneers in this space, and the work being done across both ecosystems will help to ensure the continued success of not only DeFi, but the broader industry as well."
