Original author: Jiang Haibo

On August 9, Rune Christensen, co-founder of MakerDAO, published the article "SparkDAO SPK Pre-mining Airdrop; General Overview of SubDAO Mining" in the forum, mentioning SparkDAO's SPK airdrop and SubDAO's token economics that everyone is concerned about.

Spark Protocol is the first product in Maker Endgame’s transformation phase. As Maker raises the DSR (DAI deposit rate) to 8%, users are more likely to be exposed to Spark, a lending protocol built on the Aave V3 code (10% of Spark’s profits will also be allocated to Aave). Now the "Use Dai" button on the MakerDAO official website has been redirected to the Spark homepage. From here, you can either deposit collateral to borrow DAI, or you can deposit DAI into the DSR contract in the form of sDAi (SavingsDAI) to obtain 8%. rate of return. It can be seen that Maker currently supports Spark. Below, PANews will explain to you the rules and precautions for Spark’s retroactive airdrop.

Retroactive airdrops are the solution to EDSR’s arbitrage problem

Spark's retroactive airdrop is mainly a solution to the problems caused by the implementation of EDSR (Enhanced DAI Deposit Rate). In a previous article, we mentioned that in order to maintain demand for DAI in the months before the launch of Endgame, Maker enabled EDSR and raised DSR to 8% above the US Treasury yield.

But this also brings problems. Maker hopes to allocate as much funds as possible to users who normally hold DAI, but the arbitrage activities of whales have increased Maker's spending on DSR. Rune also said in Discord on August 10 that there has been no inflow of funds in the past 24 hours, and the newly minted DAI and the part deposited into the DSR contract are entirely for lending arbitrage.

Rune has proposed an anti-arbitrage solution that hopes to lower the EDSR cap from 8% to 5%, while increasing the stability fee for crypto-collateralized lending (except ETH-A, ETH-B, ETH-C) to 5%.

If the proposal is implemented, arbitrage funds will leave and the issuance of DAI will decrease. Except for the part of DAI minted with USDC through PSM, the rest of the data may return to the level before the implementation of EDSR, and USDC PSM accounts for a very small proportion of the newly added DAI.

To this end, Rune proposed to establish a retroactive SubDAO token mining airdrop for Spark protocol users to reward early users for their support of the Spark DAO community.

SPK and SubDAO Token Distribution Rules

SparkDAO is a member of the SubDAO in Maker. It was originally envisioned that it would transition to Creator SubDAO after the Creator SubDAO model was established.

Each Maker SubDAO has its own SubDAO token, which is minted by Maker Core and distributed mainly through mining. Therefore, Spark’s token SPK should also follow the SubDAO token standards set by Maker.

From the token economics document on Maker's official website Endgame, we know that the initial supply of each SubDAO token is 2.6 billion. 400 million of them are used to incentivize SubDAO employees; 200 million will be sold as DAI within 2 years to provide funds for SubDAO; the remaining 2 billion will be distributed through liquidity mining within 10 years. The specific distribution schedule is shown in the figure below.

Of the mining allocation for these SubDAO tokens, 75% will be allocated to NewStable users (an upgraded version of DAI, Maker expects to upgrade both DAI and MKR tokens in the future, as mentioned a few months ago), and 25% will be allocated to NewGovToken (an upgraded version of MKR) users.

Rune’s comments in the forum are consistent with Endgame’s token economics regarding the distribution time of the 2 billion SubDAO tokens and the distribution ratio between DAI and MKR. However, other parts are slightly different. Rune mentioned that in addition to the SubDAO tokens generated by mining, there are 300 million tokens allocated to the labor bonus pool to be paid to project contributors, and the pre-mining part of the rewards also comes from this additional SubDAO token pool.

It is certain that the total amount of SPK and other SubDAO tokens exceeds 2 billion, and there are 300 million to 600 million tokens for employee incentives and protocol development, and the retroactive rewards are partly from the latter. The specific number of SPK tokens to be rewarded will be determined in subsequent proposals.

Precautions

Trace back the start time of the airdrop

The main purpose of retroactive airdrops is to prevent capital outflows after the implementation of the anti-arbitrage scheme, and will also start from the time when the anti-loan arbitrage is implemented. That is, it has not yet taken effect, and will be calculated from the time when the proposal to increase the lending rate to 5% is implemented.

Allocation criteria

Rune mentioned in the forum that the allocated SPK tokens will be distributed proportionally to Spark protocol borrowers who use volatile assets as collateral based on the loan amount and term. In other words, only borrowing in Spark is eligible for airdrops.

Airdrop Time

Referring to Rune's Endgame schedule, SubDAO will be launched in the second phase of Endgame, which will also start the formal mining of SubDAO, and the airdrop should also be in this phase. The first phase of Endgame is scheduled to be launched in early 2024, which means that the airdrop will be after this time period. The recently discussed plan to increase the issuance of MKR at a ratio of 1: 12000 and upgrade it to a new governance token (NewGovToken) will also be implemented in the first phase of Endgame. The new governance token will support the lock-up mining of SubDAO, and the name of the new governance token has not yet been determined.

rate of return

According to Rune, Spark’s airdrop goal is to only allocate “low single-digit” yields to users, rather than a large amount of free money, so the yield should not be high.

Spark D 3 M Debt

The DAI borrowed from Spark does not come from user deposits like other loans, but from the credit line allocated to Spark by Maker through D 3 M (Direct Deposit Module). According to the statement that "the airdrop is allocated to Spark protocol borrowers who use volatile assets as collateral", this part should be counted as an airdrop. Therefore, if you want to get the airdrop, users who borrow DAI through Maker can switch their loan positions to Spark.

As a reminder, Spark D 3 M’s debt ceiling was only raised from 20 million DAI to 200 million DAI in an executive vote on August 6, and as of August 11, 198 million had been used, and the ceiling is about to be reached.

Should loans using sDAI be counted as airdrops?

By depositing DAI into DSR through SavingsDAI, users can obtain deposit certificates sDAI. Although Spark currently disables sDAI deposits and lending, in theory Spark should support it and plans to do so after anti-arbitrage takes effect. So if you borrow other assets with sDAI as collateral and use these assets as collateral, can you get airdrops?

Should sDAI be considered a "volatile asset"? Its volatility is not high, but it is not a stablecoin either. If sDAI's airdrop qualification is recognized, it may lead to meaningless circular mortgage lending; if it is not supported, there is no other non-volatile asset collateral in Spark, which needs to be specifically excluded. This point is still controversial.