Integration of Ethena’s USDe into Spark Protocol

Spark Protocol, a subsidiary of Sky (formerly MakerDAO), announced the integration of Ethena’s USDe synthetic dollar into its liquidity layer on Tuesday. In this partnership, Spark plans to allocate up to $1.1 billion of its balance sheet to Ethena’s yield-bearing tokens, enhancing capital efficiency.

USDe Overview

Launched in early 2024, USDe is an innovative stablecoin that maintains its peg to the USD through an algorithmic basis trade. It has quickly risen to become the fourth-largest stablecoin partly due to its yield-earning capabilities for users, unlike tether and other corporate-backed assets.

Spark’s Liquidity Layer

Before this integration, Spark’s Liquidity Layer only included Circle’s USDC stablecoin and Sky’s USDS and sUSDS tokens. Spark estimates it could achieve approximately 27% APY in favorable market conditions by onboarding Ethena’s USDe and sUSDe tokens into its portfolio.

According to Spark’s blog post, “The addition of Ethena showcases Spark’s commitment to innovation and scalability. By enhancing liquidity management and revenue generation, Spark solidifies its vision of becoming the yield engine for DeFi.”

This partnership marks Spark’s first move towards its proposed allocations within the Multi-chain system launched late last year, aimed at allowing easier access to Sky’s yield-bearing savings USDS stablecoin through various DeFi protocols.

Benefits for the Spark Ecosystem

The integration enhances Spark’s infrastructure with substantial yield opportunities for Savings USDS depositors. The Liquidity Layer manages $6.2 billion in stablecoin liquidity, allowing users to convert USDC into either USDS or sUSDS across supported networks. The current rate for Savings USDS is approximately 12.5%, supported by Sky’s revenue from over-collateralized loans and real-world investments.

Market Position

Currently, USDS maintains its position as the third-largest stablecoin by market cap and is fully convertible to MakerDAO’s original dollar-pegged token dai, which is now the fifth-largest stablecoin.

Spark has been involved with Ethena’s USDe and sUSDe tokens since March via its over-collateralized Morpho vaults. Recently, the protocol’s DAO considered adjusting risk exposure given that Ethena’s growth had propelled current USDe supply above that of USDS.

Conclusion

Ethena has reportedly generated about $120 million in annual revenue for the Sky ecosystem. In December, Ethena submitted a bid for its upcoming USDtb stablecoin to participate in Spark’s $1 billion Tokenization Grand Prix, aiming to integrate real-world assets into DeFi. Spark itself originated from MakerDAO’s restructuring plan, which sought to enhance ecosystem returns through semi-independent subDAOs resembling startups. Since its inception, Spark’s money market has generated $232 million in annual revenue for the Sky ecosystem.