Dear Spark community,
Below is the Q1 2026 financial report.
Spark closed Q1 2026 in a profitable position. The quarter was characterized by a shift in revenue composition, with distribution rewards emerging as the protocol’s largest net return contributor, reflecting the continued scaling of USDS distribution infrastructure across multiple chains and products. The Spark Liquidity Layer maintained disciplined capital allocation across a diversified venue set under tighter spread conditions, while SparkLend continued to support institutional-grade borrowing activity, including the expansion of its USDT Savings Vault, built on Spark’s allocation infrastructure.
Q1 Financial Highlights
Gross protocol returns: $31.5M (QoQ -31%) (aggregate returns across all protocol components)
Net protocol returns: $6.91M (QoQ -30%) (gross returns less cost of capital)
Net protocol surplus: $3.46M (QoQ -47%) (gross returns less operating expenses)
Spark Protocol treasury (end of quarter): $46.1M (QoQ +5.7%)
SPK token buybacks: $986k (new program: capital returned via open-market purchases)
Overall, Q1 demonstrated the diversification and resilience of Spark’s protocol-level revenue streams. While unfavorable DeFi lending conditions compressed SLL spreads, Spark’s distribution business scaled meaningfully, with USDS well positioned as a scalable savings based return mechanism within the SKY ecosystem under precisely these market conditions. Spark remains well positioned to benefit from an eventual recovery in lending activity while continuing to grow its distribution footprint.
Spark comprises several components that generate protocol-level returns accrued to the treasury pursuant to governance-defined mechanisms.
These are (i) Spark Liquidity Layer (ii) distribution rewards (iii) SparkLend (iv) Treasury Management & Financial Operations.
Spark coordinates capital through these components via programmatic allocation, distribution, and lending infrastructure.
2.1 Spark Liquidity Layer (SLL)
The Spark Liquidity Layer is a smart-contract system in which assets are allocated in a programmatic manner into return-generating allocations across supported venues. Thanks to this system, the protocol may generate returns subject to market conditions, smart-contract execution, and governance-defined risk parameters.
Revenue model: The protocol captures net returns across allocated positions, including spread between lending rates and funding costs where applicable, subject to market conditions.
Q1 highlights: During Q1, the SLL operated across a broader and more diversified venue set, with an average allocated capital of $1.93B. A key focus of the quarter was over-collateralized crypto lending, both onchain and offchain through institutional counterparties. Alongside lending, allocations involving PYUSD across supported venues became the single largest deployment category at $13.1M in gross returns, reflecting the growth of Spark’s stablecoin infrastructure.
Spark Institutional Lending (Spark’s OTC lending structure) continued to scale during the quarter, generating $2.27M in gross returns with $150M deployed at quarter-end. Governance approved a $1B ceiling for this structure, reflecting confidence in the institutional custody framework and the quality of the underlying lending activity. This structure extends Spark’s capital coordination into custody-supported institutional credit markets beyond onchain venues.
Spread compression was evident across the quarter, with the capture spread narrowing from 0.83% in January to 0.41% in March. This reflected softer DeFi lending conditions and rising Savings V2 borrow costs as Spark’s USDT savings product grew.
Under weak market conditions, Spark did not increase its risk profile in search of additional returns. Importantly, allocation parameters remained consistent despite spread compression. The SLL remained net-positive throughout the quarter.
KPIs:
Average deployment: $1.93B
Average APY: 5.8%
Gross returns: $27.62M
Net protocol returns: $3.05M
Captured spread: 0.64%
Spark functions as a distribution layer within the SKY ecosystem, routing capital into Savings Vaults, allowing users to get exposure to USDS and the SKY savings rate. Distribution revenue reflects Spark’s role in facilitating access to these savings mechanisms, where returns originate from underlying balance sheet and allocation frameworks within the SKY ecosystem.
Q1 highlights: Distribution rewards became the largest single contributor to Spark’s net protocol returns during Q1, surpassing net SLL revenue for the first time. This structural shift underscores the scalability of Spark’s distribution infrastructure, particularly under market conditions where lending spreads compress but demand for savings based deployment remains robust.
sUSDS generated $1.66M in distribution revenue, the largest single token contributor, followed by stakedUSDS (stUSDS) at $710k. sUSDC contributed $315k and spUSDT, reflecting the growth of the Spark USDT Savings Vault, contributed $145k in its first full quarter. Revenue grew from $894k in January to $1.27M in March, demonstrating continued month-over-month acceleration.
USDS is well positioned as a scalable savings based return mechanism under unfavorable market conditions: as DeFi lending yields compress, users increasingly seek predictable savings exposure rather than variable lending returns, and Spark’s distribution channels benefit directly from this dynamic. The growth of the USDT Savings Vault in particular demonstrates Spark’s ability to expand its distribution footprint into new stablecoin denominations.
KPIs:
Distributed supply: $4.5B
Q1 revenue: $3.31M
SparkLend is a core lending protocol within the Spark ecosystem, operating as one of the largest and secure lending platforms in DeFi (DefiLlama), with only blue-chip collateral. It supports institutional borrowing activity, with liquidity supplied through the SLL as the governance-approved protocol mechanism.
Revenue model: Spark collects a reserve factor on interest accrued by borrowers.
Q1 highlights: During Q1, SparkLend continued to operate as one of the largest money markets in DeFi, with the SLL allocating $688M into SparkLend markets at quarter-end across DAI, USDS, USDT, pyUSD, USDC, and WETH.
A key development during the quarter was the continued growth of the Spark USDT Savings Vault. SparkLend USDT balances reached $285M by March 31, establishing SparkLend as one of the largest USDT lending venues on Ethereum. This reflects the integration of USDT-denominated savings flows into Spark’s lending infrastructure, supporting both borrowing demand and broader distribution growth.
Activity and utilization metrics reflected broader DeFi market softness, with reserve factor revenue declining to $156k from $215k in Q4.
KPIs:
SparkLend SLL deployment (end of quarter): $688M
Q1 revenue (reserve factor on yield, excluding SLL): $156k
Spark’s treasury represents the protocol’s operational capital. It both pays for the operational expenses as well as acts as junior capital required by SKY to fulfill the risk-required capital needs for accessing the SKY credit line. It serves as a core component of Spark’s risk framework, providing capital support and absorbing potential volatility within the system.
Revenue model: The protocol may generate returns on treasury assets through SKY’s savings rate and other financial operations.
Q1 highlights: During Q1, the treasury generated $354k in net positive returns, with returns from USDS denominated savings exposure on the treasury balance partially offset by negative returns from volatile asset exposure.
Additionally, the protocol initiated its first SPK token buyback program during Q1, allocating $986k in USDS to open-market purchases of SPK tokens. This represents Spark’s first direct capital return mechanism and reflects governance confidence in the protocol’s financial position and long-term value creation.
Summary of Spark’s total revenues, costs, and net results across all protocol components for the quarter. It combines returns generated through capital allocation (SLL), distribution rewards, SparkLend reserve factor revenue, and treasury operations, net of the cost of capital, curator fees, grants and operating expenses, to illustrate Spark’s protocol-level net results for the quarter.
Accounting note: The consolidated statement of earnings represents Spark’s internal, accrual-based estimation of revenues, costs, and net results for the quarter, based on protocol-level data and internal calculations. Settlement flows from SKY may differ in timing or amount and are reconciled over subsequent settlement periods.
Link to the glossary here
Snapshot of assets held by Spark’s protocol-controlled smart contracts and treasury addresses at quarter-end, expressed in USDS terms across both treasury-held and allocated positions.
Links to the treasury address here.
A snapshot of Spark’s assets and liabilities at quarter-end, based on onchain balances and settlement determinations by SKY, the parent protocol.
Growth drivers
Q1 was defined by the scaling of Spark’s distribution business and the diversification of its SLL allocation venues. Distribution rewards grew to $3.31M for the quarter, overtaking net SLL revenue as the protocol’s primary net return driver. This reflects a structural shift in how the protocol generates returns under different market conditions. This growth was supported by continued demand for USDS-denominated Savings Vaults across multiple chains and token types.
On the SLL side, Spark Institutional lending continued to mature, with $150M deployed at quarter-end under a governance-approved $1B ceiling. This structure broadens Spark’s exposure beyond onchain money markets into institutional custody-supported lending, while maintaining conservative risk parameters.
The growth of Spark USDT Savings Vault, while compressing short-term SLL net returns, represents a strategic investment in capturing institutional USDT demand and expanding the protocol’s stablecoin distribution footprint. As lending spreads compress, distribution-driven returns scale with demand for predictable savings exposure, providing a natural counterbalance within the system.
Challenges
Market conditions during Q1 were characterized by reduced DeFi lending activity and compressed spreads. The SLL capture spread narrowed from 0.70% in Q4 to 0.64% in Q1, driven by softer lending demand and rising Savings Vault's borrow costs associated with the USDT Vault ramp. Average SLL allocation capital declined from $2.8B in Q4 to $1.93B in Q1, reflecting reduced lending demand across the protocol’s venue set.
Despite these headwinds, the protocol remained profitable every month during the quarter, with net protocol surplus ranging from $990k to $1.29M monthly. The structural shift toward distribution revenue provided a natural hedge: as lending spreads compressed, demand for savings based capital deployment increased, and Spark’s distribution infrastructure captured this flow. This demonstrates the system’s ability to adapt to changing market conditions without increasing risk exposure.
Risk management
Throughout Q1, Spark continued to prioritize security and capital preservation. SparkLend maintained a high-quality collateral mix, while the Spark Liquidity Layer remained predominantly allocated to over-collateralized lending strategies, both onchain and through carefully selected institutional counterparties including the Anchorage tri-party structure.
During the quarter, low-borrow-activity collateral types were removed from SparkLend, whose risk-adjusted contribution did not justify the additional risk surface they introduced to the protocol. Additionally, Spark initiated the wind-down process of the SparkLend Gnosis Chain instance, removing tail risk and reducing operational overhead. These actions reflect a deliberate risk reduction and a focus on maintaining a streamlined, defensible protocol surface as the system scales.
The protocol’s treasury stood at $46.1M at quarter-end, continuing to serve as junior capital for the system and providing an additional buffer against adverse market conditions. Conservative risk parameters remain central to Spark’s approach as it scales into its institutional product suite.
Spark addresses:
Spark Treasury: 0x3300f198988e4C9C63F75dF86De36421f06af8c4
Spark Liquidity Layer:
Ethereum: 0x1601843c5e9bc251a3272907010afa41fa18347e
Base: 0x2917956eFF0B5eaF030abDB4EF4296DF775009c
Unichain: 0x345E368fcCd62266B3f5F37C9a131FD1c39f5869
Arbitrum: 0x2B05F8e1cACC6974fD79A673a341Fe1f58d27266
Optimism: 0xe0F9978b907853F354d79188A3dEfbD41978af62
Avalanche: 0xecE6B0E8a54c2f44e066fBb9234e7157B15b7FeC
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