Spark closed Q2 2026 in a profitable position, with distribution firmly established as the protocol's primary revenue engine. Distribution rewards reached $4.53M for the quarter, by a wide margin the largest contributor to net protocol returns, reflecting sustained demand for USDS savings products across chains and denominations. The quarter's defining strategic move was a deliberate investment in growing the Spark Savings USDT market. The resulting funding costs were carried within the Spark Liquidity Layer, pushing net SLL revenue negative for the quarter while supporting the continued expansion of Spark’s institutional distribution footprint. SparkLend continued to anchor institutional-grade borrowing activity, led by USDT, and the protocol remained profitable in every month of the quarter.
Gross protocol returns: $40.6M (QoQ +29%) (aggregate returns across all protocol components)
Net protocol returns: $4.31M (QoQ -38%) (gross returns less cost of capital)
Net protocol surplus: $0.71M (QoQ -79%) (gross returns less cost of capital and operating expenses. Negative QoQ change driven by continued SLL spread compression and the funding cost of scaling the Spark Savings USDT market, which pushed net SLL revenue negative for the quarter. See Section 2.1.)
Spark Protocol treasury (end of quarter): $48.5M
SPK token buybacks: $1.31M (capital returned via open-market purchases)
Overall, Q2 reinforced the diversification and resilience of Spark's protocol-level revenue streams. Continued SLL spread compression and the funding costs of scaling the Spark Savings USDT market pushed net SLL revenue negative for the quarter. Against this backdrop, Spark's distribution business scaled materially, with USDS increasingly 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.
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.
Q2 highlights: During Q2, the SLL operated across a broad and diversified venue set, with average allocated capital of $2.56B, up from $1.93B in Q1. Capital allocated directly into stablecoin positions became the single largest deployment category at $19.6M in gross returns, led by sUSDS ($13.8M), the largest single-token contributor, which operates as the backing for Savings V2 products, and PYUSD ($5.85M), reflecting the continued growth of Spark's stablecoin allocation infrastructure. Alongside these allocations, the protocol maintained a significant focus on over-collateralized crypto lending, both onchain and offchain through institutional counterparties.
Spark Institutional Lending (Spark's OTC lending structure) continued to scale during the quarter, generating $3.16M in gross returns with approximately $261M deployed at quarter-end, up from $150M at the end of Q1. This structure extends Spark's capital coordination into custody-supported institutional credit markets beyond onchain venues.
A key development during Q2 was the continued expansion of the Spark Savings USDT market within governance-defined allocation parameters. As the product scaled, its funding costs were borne within the Spark Liquidity Layer, reflecting the cost structure of growing this distribution channel under those parameters. This increased the SLL's cost of capital during the quarter and was the primary driver of the negative net result.
Against this backdrop, The capture spread moved from 0.64% in Q1 to -0.13% in Q2, progressing from approximately breakeven in April to -0.20% in May and -0.15% in June, reflecting softer DeFi lending conditions alongside the elevated funding costs associated with scaling the Spark Savings USDT market.
Allocation parameters remained consistent despite spread compression, and Spark did not increase its risk exposure in search of additional returns. Net SLL revenue was modestly negative in each month of the quarter, as funding costs, including costs on reserve balances held for Spark Savings redemption coverage, exceeded gross allocation returns.
Spark collects a 0.2% distribution payment on Savings V2 balances. This payment is expensed within the SLL's cost of capital and subsequently recognized within distribution rewards.
KPIs:
Average deployment: $2.56B
Average Gross Yield: 5.6%
Gross returns: $35.50M
Net protocol returns: -$0.81M
Captured spread: -0.13%
Spark functions as a distribution layer within the SKY ecosystem, providing users with access to Savings Vault products, including USDS-denominated savings vaults 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.
Q2 highlights: Distribution rewards were the largest single contributor to Spark's net protocol returns during Q2, extending the structural shift first seen in Q1 and now exceeding net SLL revenue by a wide margin. This 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 $2.63M in distribution revenue, the largest single-token contributor, followed by staked USDS products at approximately $972k (stakedUSDS and stUSDS). The Spark USDC Savings Vault contributed $255k and sUSDC $153k, while spUSDT, reflecting the continued growth of the Spark USDT Savings Vault, contributed $526k. Revenue rose steadily from $1.40M in April to $1.55M in May and $1.58M in June.
USDS remains 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 continued growth of the USDT Savings Vault in particular demonstrates Spark's ability to expand its distribution footprint across stablecoin denominations.
KPIs:
Net distributed sUSDS supply (end of quarter): $3.8B
Q2 revenue: $4.53M
*Beginning with this report, rewards earned on Spark's Savings products are reported within distribution rewards; in prior periods these were accounted for as supply-side revenue under the SKY settlement framework.
SparkLend is a core lending protocol within the Spark ecosystem, operating as one of the largest and most 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.
Q2 highlights: During Q2, SparkLend continued to operate as one of the largest money markets in DeFi, with the SLL allocating approximately $1.20B into SparkLend markets at quarter-end across DAI, USDS, USDT, pyUSD, USDC, and WETH, up from $688M at the end of Q1. A key development during the quarter was the continued growth of the Spark USDT Savings Vault. SparkLend USDT balances reached approximately $528M by June 30, up from $285M at the end of Q1, 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.
Reserve factor revenue rose to $245k for the quarter, up from $156k in Q1, with contribution front-loaded in April ($104k) before easing to $67k in June as utilization softened.
KPIs:
SparkLend SLL deployment (end of quarter): $1.20B
Q2 revenue (reserve factor on yield, excluding SLL): $245k
Q1 revenue (reserve factor on yield, excluding SLL): $156k
Spark's treasury represents the protocol's operational capital. It pays for the protocol’s operating expenses and acts as junior capital required by SKY to fulfil 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. The January to June settlement with SKY of $9,746,443, settled to the treasury on July 20, 2026, is recognized as a receivable at quarter-end on the treasury statement.
Revenue model: The protocol may generate returns on treasury assets through SKY's savings rate and other financial operations.
Q2 highlights: During Q2, the treasury generated $332k in net returns, comprising $349k of USDS-denominated savings yield on the treasury balance, less a $16k unrealised mark-to-market loss on a token position received in April.
The protocol continued its SPK token buyback program during Q2, allocating $1.31M in USDS to open-market purchases of SPK, acquiring 58.26M SPK across 1,301 fills over the quarter. This represents the continuation of Spark's direct capital return mechanism.
Beginning with this report, the treasury statement also presents the accrued depositor-yield liability of the Spark Savings Vaults: yield credited to depositors, including program boosts, that remains unredeemed at quarter-end and is realized as depositors withdraw. The liability stood at $6.36M at June 30.
Summary of Spark's total revenues, costs, and net results across all protocol components for the quarter. It combines returns generated through the Spark Liquidity Layer (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. Figures are presented as of June 30, 2026, based on Dune data available at publication. Gross figures scale with Savings Vault deposits and the USDS issued against them and are matched by corresponding cost of capital; net measures are the primary indicators of underlying performance.
Memo: Including $0.78M of distribution rewards attributable to Savings V2 vault balances (spUSDT, spUSDC and spPYUSD), whose funding cost is expensed within the SLL's cost of capital, net SLL revenue was -$0.03M, essentially breakeven. This management view reallocates rewards reported within distribution rewards in the statement and does not affect consolidated totals.
Link to the glossary here.
Spark's treasury at quarter-end, expressed in USDS terms.
Notes: The statement reflects positions held on-chain, depositor obligations credited by the Savings Vaults, and settlement amounts determined. Treasury figures follow Dune query 6656460, with quarter-end balances verified on-chain. The settlement receivable is the net January to June settlement with SKY, settled on July 20, 2026; its revenue is already recognized in the Q1 and Q2 statements of earnings, and the total's quarter-over-quarter change is shown as n/m because the comparative carries no corresponding receivable. Under the Q1 2026 report's presentation the quarter-start total was $46,097,332; the difference reflects settlement accruals not recognized under this presentation and the depositor-yield liability now presented.
Growth drivers
Q2 was defined by the continued scaling of Spark's distribution business and further diversification of the Spark Liquidity Layer's (SLL) allocated capital base. Distribution rewards grew to $4.53M for the quarter, extending their lead over net SLL revenue as the protocol's primary net return driver. This reflects a durable structural shift in how the protocol generates returns across different market conditions, supported by continued demand for USDS-denominated Savings Vaults across multiple chains and token types. On the Spark Liquidity Layer side, Spark Institutional Lending continued to mature, with approximately $261M deployed at quarter-end, broadening Spark's exposure beyond onchain money markets into custody-supported institutional credit markets while maintaining conservative risk parameters. The continued growth of the Spark USDT Savings Vault, while compressing short-term SLL net returns, reflected in the funding costs associated with expanding institutional USDT distribution and expanding the protocol's stablecoin distribution footprint.
Challenges
Market conditions during Q2 remained characterized by reduced DeFi lending activity and compressed spreads. The Spark Liquidity Layer (SLL) capture spread turned negative at -0.13% for the quarter from 0.64% in Q1, moving from approximately breakeven in April to -0.20% in May and -0.15% in June, driven by softer lending demand and elevated funding costs associated with scaling the Spark Savings USDT market. As a result, net SLL revenue fell to -$0.81M from $3.05M in Q1, even as average allocated capital grew to $2.56B. Part of this drag is definitional: the funding cost of Savings V2 vault deposits is expensed within the SLL's cost of capital, while the distribution rewards those balances generate ($0.78M in Q2) are reported within distribution revenue; including them, the SLL was approximately breakeven for the quarter. The accrued depositor-yield liability of the Savings Vaults, presented on the treasury statement from this quarter, stood at $6.36M at quarter-end, largely reflecting the ramp of the USDT Savings Vault. Despite these headwinds, the protocol remained profitable every month during the quarter, with net protocol surplus ranging from $45k to $417k monthly. The structural shift toward distribution revenue continued to provide a natural hedge: as lending spreads compressed, demand for savings based capital deployment increased, and Spark's distribution infrastructure captured this flow, demonstrating the system's ability to adapt to changing market conditions without increasing risk exposure.
Risk management
Throughout Q2, 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. The protocol maintained consistent allocation parameters through a period of spread compression rather than reaching for yield, and continued to focus on a streamlined, defensible protocol surface as the system scaled. The protocol's treasury stood at $48.5M 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 Treasury (SAF): 0xEabCb8C0346Ac072437362f1692706BA5768A911
SparkLend reserve factor collector: 0xb137E7d16564c81ae2b0C8ee6B55De81dd46ECe5
Spark Foundation: 0x92e4629a4510af5819d7d1601464c233599ff5ec
Spark operations: 0x2e1b01adabb8d4981863394bea23a1263cbaedfc
SPK buyback: 0x797B010E0BABb493b8DEDD6F6ce5cc72778C2BF3
Spark Liquidity Layer (Ethereum): 0x1601843c5e9bc251a3272907010afa41fa18347e
Spark Liquidity Layer (Base): 0x2917956eFf0B5eaF030abDB4EF4296DF775009cA
Spark Liquidity Layer (Unichain): 0x345E368fcCd62266B3f5F37C9a131FD1c39f5869
Spark Liquidity Layer (Arbitrum): 0x2B05F8e1cACC6974fD79A673a341Fe1f58d27266
Spark Liquidity Layer (Optimism): 0xe0F9978b907853F354d79188A3dEfbD41978af62
Spark Liquidity Layer (Avalanche): 0xecE6B0E8a54c2f44e066fBb9234e7157B15b7FeC
Treasury data: https://dune.com/queries/6656460
Data sources:
Product architecture: Spark protocol documentation
Financial statements & treasury data: Spark Finance internal financial records (Q2 2026).
On-chain data: Dune Analytics (links provided throughout the report).
Disclaimers
This communication is provided for informational purposes only, without warranty of any kind, express or implied, including but not limited to implied warranties of merchantability, non-infringement, or fitness for a particular purpose. This communication has been prepared based on data and information that has not been independently verified and Phoenix Labs makes no representations about the accuracy of the information or appropriateness for a given situation. This content is not intended or offered as advice of any kind including financial, investment, legal, regulatory, or tax advice, and users should seek qualified professional advice where appropriate. References to assets or protocols are provided for informational purposes only, and this communication is not an offer to sell, solicitation of an offer to buy, or inducement or recommendation to engage with any asset or protocol. For the avoidance of doubt, Phoenix Labs prepares this report solely in its capacity as a nested contributor and does not control, own, or operate Spark or its protocol treasury. This communication has not been prepared by a professional accounting service provider, and figures and calculations may not conform to GAAP or other international standards for financial reporting. This communication is not intended for residents or nationals of the United Kingdom, or for other prohibited or restricted jurisdictions and persons including those listed on US, EU, UK, or UN sanctions lists.