Sky's Lending SubDAO Spark aims to directly invest in Ethena's USDe and SUSDe Tokens, with an investment amount of up to 11 billion US dollars

According to "The Block", Spark Protocol, the lending sub-DAO in the Sky ecosystem, is allocating up to 11 billion dollars of Spark liquidity layer assets to Ethena's USDe and sUSDe Tokens. The team estimates that under "favorable market conditions", it may achieve an annual yield of approximately 27% (APY) to help drive Sky's revenue and maximize returns for Savings USDS depositors.

Sky's subsidiary Spark Protocol announced on Tuesday that it will integrate Ethena's USDe synthetic dollar into its "liquidity layer". As part of the collaboration, Spark plans to allocate up to 11 billion US dollars in assets to Ethena's revenue Token to enhance "capital efficiency".

USDe was launched in early 2024 and stands out in the stablecoin field because it is pegged to the US dollar through algorithmic-based trading. The rise of USDe has made it the fourth largest stablecoin, in part because, like other on-chain stablecoin products, it pays users holding income, unlike Tether, which is supported by corporate assets.

Before this latest move, the assets in the Spark liquidity layer were limited to Circle's stablecoins and Sky's and sUSDS Tokens. Spark estimates that by directly incorporating Ethena's USDe and sUSDe Tokens into its portfolio, it can achieve an annual yield of about 27% under 'favorable market conditions'.

"Ethena's addition demonstrates Spark's commitment to innovation and scalability," the Spark team wrote in a blog post. "By enhancing liquidity management and income generation, Spark solidifies its vision as a DeFi yield engine."

The team stated that this is the first step Spark has taken on its liquidity layer, aimed at making it easier for other DeFi protocols to access Sky's yield stablecoin Savings USDS through a multi-chain system.

“By incorporating Ethena's USDe and sUSDe into its assets, Spark has added a major revenue opportunity for its infrastructure, preparing to maximize returns for Savings USDS depositors and the Spark ecosystem,” the Spark team said.

The Spark liquidity layer manages $6.2 billion in stablecoin liquidity, allowing users to convert Circle's USDC stablecoin to Sky's USDS or yield-bearing stablecoin 'Savings USDS' (sUSDS) on their chosen supporting network. The stable interest rate of Savings USDS is determined by Sky's governance DAO, currently around 12.5%, supported by Sky's sources of income (including over-collateralized DeFi loans and real-world investments).

USDS is currently the third largest stablecoin by market capitalization, fully redeemable for MakerDAO's native US dollar-pegged Token DAI, which has dropped to the fifth largest stablecoin.

Since March, Spark has accessed Ethena's USDe and sUSDe Token through its over-collateralized Morpho treasury. In December last year, the protocol's DAO considered adjusting its risk exposure to the network.

"Considering Ethena's significant growth over the past few months, the current supply of USDe has exceeded USDS. We suggest adopting a stricter total exposure threshold, namely 20% of the USDe supply," the team pointed out. This is approximately equivalent to 1.05 billion USDS."

Meanwhile, Ethena claims to contribute approximately $120 million in annual revenue to the Sky ecosystem. In December of last year, Ethena proposed to include its new USDtb stablecoin in Spark's $1 billion Tokenization Challenge, which aims to bring real-world assets into DeFi by providing funding to selected participants. The USDtb Token was ultimately supported by US government bonds through BlackRock's BUIDL fund.

Spark is part of MakerDAO and was spun off from founder Rune Christensen's 'Endgame' plan. The plan aims to increase the ecosystem's return by launching semi-independent 'sub-DAOs' that are similar to startups. Since its launch, the Spark currency market has contributed approximately $2.32 billion in annual revenue to the Sky ecosystem.