While performing the exercise of valuing MKR tokens ahead of the SKY launch, one of the key questions to ask is what value the token captures from the launch of all these projects. What impact should we consider on the MKR token for having financed and created these startups?

Spark is currently ranked 12th in DeFi, with a TVL of 2.5 billion. We can consider it as a Lending project that primarily has a protocol that provides capital to lend to third parties. This means that its business is essentially based on interest rate arbitrage. The development is a fork of AAVE, which is also compensated for the use of its code.

The relationship is positive for MakerDAO, as it finds demand for its stablecoin, although it delegates the responsibility of collateral to Spark, which, in the worst case, can also respond with its tokens in the event of solvency issues.

SPIN-OFFS OR DIVESTITURES

This strategy in TradFi is often called corporate spin-offs or divestitures. In this approach, a parent company creates or acquires subsidiaries with the goal of growing them into profitable, independent businesses that can later be sold or spun off to maximize shareholder value. Here’s a detailed explanation of the strategies behind this business model:

1 Incubating New Ventures (Business Incubation): One key strategy is to develop new business lines within the parent company that have growth potential but are outside the core business. These ventures can operate semi-independently under the corporate umbrella, receiving financial support, management expertise, and access to resources from the parent. Once the new business has achieved a certain level of profitability or market presence, it can be spun off as a separate entity or sold to another company.

Benefits:

The parent company reduces its exposure to risk while still benefiting from the potential upside. Allows the new company to operate with more agility and focus without being constrained by the corporate structure. The parent company can monetize its investment through a sale, generating cash flow or strategic advantages.

2. Spin-offs: A corporate spin-off occurs when a parent company separates a portion of its business to create a new independent company. In most cases, shareholders of the parent company are given stock in the new entity. Spin-offs often occur when a business segment doesn't align with the parent’s long-term strategy or when it has potential to grow faster as a standalone company.

Benefits:

The new company can focus on its core competencies and develop its own corporate culture, independent of the parent. Investors may value the new company higher when it’s operating independently, unlocking shareholder value. The parent company can streamline its operations, focusing on its main business areas.

3. Divestitures (Sell-offs): This strategy involves the outright sale of a subsidiary or division to another company, often private equity firms or strategic buyers. Companies may pursue this strategy when they want to focus on core operations, shed underperforming assets, or raise capital. Divestitures are also common when a business unit has reached maturity and is no longer aligned with the parent company’s long-term goals.

Benefits:

Generates immediate liquidity for the parent company, which can be reinvested in other strategic areas. Reduces operational complexity and allows the company to focus on its core business. Can result in a more streamlined and profitable parent company after shedding non-core or low-margin assets.

4. Private Equity-backed Growth and Exit: In some cases, a parent company may create a subsidiary with the intention of attracting private equity (PE) investment. The PE firm typically provides capital and strategic guidance to grow the business quickly, with the understanding that the subsidiary will be sold or taken public (IPO) once it reaches a certain valuation or performance milestone.

Benefits:

Access to additional capital for accelerated growth. The parent company can benefit from the future sale or public offering. Private equity involvement brings operational expertise and governance that can improve the subsidiary’s performance.

5. Strategic Carve-outs for Future Sale: Carve-outs involve separating a business unit or subsidiary and selling only a portion of it, often through an initial public offering (IPO). This allows the parent company to retain some ownership while raising capital and reducing its stake over time. Carve-outs are typically used when the subsidiary shows strong growth potential but isn’t fully ready for independence.

Benefits:

The parent company retains partial ownership, benefiting from future growth. Raises capital while allowing the new entity to operate more independently. Positions the new company for full independence or future sale when the timing is right.

6. Asset Stripping and Sale: This strategy involves acquiring businesses with the intent of breaking them up and selling off individual parts. It’s typically employed by private equity firms or large corporations seeking to unlock value by selling more profitable business units or assets while closing or divesting unprofitable ones.

Benefits:

Can generate a significant return if individual business units are more valuable separately than as part of a larger company. Maximizes the value of each business unit through targeted sales. Frees up capital and resources for the parent company to focus on more strategic initiatives. Conclusion: Creating and growing subsidiaries with the goal of making them profitable for eventual sale or spin-off is a common corporate strategy. It allows companies to diversify their operations, incubate new ventures, or shed non-core assets while unlocking value for shareholders. Each of the strategies discussed—business incubation, spin-offs, divestitures, private equity-backed growth, carve-outs, and asset stripping—provides a pathway for companies to optimize their portfolio and maximize return on investment through focused management and strategic exits.

SPARK DAO

How could we classify the strategy with SparkDAO?

Based on the previously discussed definitions, the strategy followed by MakerDAO can be classified as a corporate spin-off with no retained equity. In this case, MakerDAO has funded the creation of a company that is set to go public, which will generate significant profits for the parent organization (MakerDAO) but without retaining any ownership or equity stake in the new entity.

This approach differs from typical spin-offs where the parent company usually retains partial ownership or receives shares in the new company. Here, MakerDAO is foregoing direct ownership in the newly created business, focusing instead on the indirect benefits, such as the value generated by the new entity for the broader ecosystem or other strategic objectives, rather than direct financial returns from equity.

It reflects a strategy where the primary aim is to create value for the ecosystem or community, rather than maintaining a controlling interest or equity in the newly formed venture.

The pre-launch token distribution has been made to the protocol developers and the protocol's clients (primarily those who have used Spark by making loans)

In this case, the strategy followed by MakerDAO could be described as a combination of a community and developer-oriented spin-off, with a token distribution that fosters active participation and engagement within the ecosystem. Instead of retaining direct equity in the spin-off company (MKR Token), MakerDAO has chosen to distribute pre-launch tokens among the protocol developers and key users (primarily those who have used Spark for loans).

1. Incentives for Developers and Users: By distributing tokens to developers and clients, this approach aligns the interests of the most engaged members of the ecosystem, encouraging further development and utilization of the platform.

2. Community-Centric Approach: This strategy leverages the power of the community by rewarding those who have actively contributed to and supported the protocol. It creates a sense of ownership and loyalty among developers and users, who are now stakeholders in the new entity.

3. No Retained Equity: By not retaining any equity, MakerDAO emphasizes a decentralized and community-driven approach. The value generated by the new entity is expected to flow back into the ecosystem indirectly, through enhanced protocol usage, network effects, and overall ecosystem growth.

4. Ecosystem Synergies: Even though MakerDAO doesn't keep direct equity in the new entity, the success of the spin-off can create indirect financial and strategic benefits. Increased usage of Spark and the broader DeFi ecosystem could enhance the overall value and stability of MakerDAO’s protocols.

In summary, this strategy reflects a community-driven spin-off where the value creation is shared with developers and early adopters rather than retained by the parent entity. It aims to foster long-term loyalty and growth within the ecosystem.

Therefore, the conclusion is that if Spark's strategy is similar to the rest of Maker’s initiatives, we should not assign any direct value to MKR based on these launches. Ultimately, the strategy has been optimized to distribute the created value across the ecosystem, which should indirectly boost the value of MKR.

This strategy certainly explains, in part, the poor short/mid-term performance of the MKR token. However, in the long term, the token should stop financing these projects, which have been a significant part of the project's costs, and begin to reap the benefits from these initiatives.

Feedback

Rune (Founder of MakerDAO) : One thing to add is that all Stars like Spark will continue to permanently emit 3.75% of their total supply per year that will go to USDS holders (and in turn generate income for Sky), so there is a permanent economic benefit going to Sky from incubating these projects.