EMB: February 11 at 06:00 UTC
Decentralized finance (DeFi) protocol Spark is driving one of the deepest pools of DeFi stablecoin liquidity into institutional markets, introducing a new lending infrastructure designed to connect on-chain capital with off-chain borrowers who have largely stayed outside of DeFi.
The protocol introduced Spark Prime and Spark Institutional Lending in an announcement at Consensus Hong Kong 2025 on Wednesday.
The new offerings expand more than $9 billion in stablecoin liquidity deployed in products targeting hedge funds, trading firms and fintechs operating under traditional custody and compliance requirements. According to Galaxy, off-chain crypto lending is estimated at around $33 billion, reflecting sustained demand from institutions that remain cautious about direct on-chain exposure.
“This will be an OTC cryptocurrency loan through a qualified custodian,” Sam MacPherson, co-founder of Phoenix Labs, the largest contributor to Spark, told CoinDesk in an interview. “This market is much larger than the DeFi lending market, and we can issue the same type of overcollateralized loans that Maker has done since its inception, but with access to a much broader set of borrowers.”
Spark Prime introduces a margin lending model that allows borrowers to deploy collateral on centralized exchanges, DeFi venues, and qualified custodians under a single risk framework. That structure improves capital efficiency for hedge funds that pursue strategies such as perpetual futures trading, while giving lenders more direct exposure to funding rates.
The system is powered by prime broker Arkis’ margin and liquidation engine, which can automatically unwind positions across venues if portfolio risk thresholds are exceeded.
Spark Institutional Lending is aimed at companies that prefer full custodial involvement. Through agreements with providers like Anchorage Digital, institutions can borrow against collateral held in regulated custody while accessing liquidity pools governed by Spark.
MacPherson said the design reflects hard lessons from past market failures. “The status quo is still providing unsecured loans to hedge funds, which can go horribly wrong,” he said. “By holding overcollateralized positions and maintaining collateral with a broker, security for lenders is dramatically improved.”
Spark has already supported institutional-scale deployments, supplying most of the liquidity behind Coinbase’s bitcoin lending product in 2025 and allocating hundreds of millions of dollars to back PayPal’s PYUSD. The new offerings formalize that approach in a broader institutional framework, positioning Spark as a conduit between on-chain stablecoin demand and off-chain capital markets.
