EMB: Feb. 11, 06:00 UTC

Decentralized finance (DeFi) protocol Spark is pushing one of DeFi’s deepest pools of stablecoin liquidity further into institutional markets, unveiling new lending infrastructure designed to connect on-chain capital with off-chain borrowers that have largely stayed outside DeFi.

The protocol introduced Spark Prime and Spark Institutional Lending in an announcement at Consensus Hong Kong 2025 on Wednesday.

The new offerings extend more than $9 billion in deployed stablecoin liquidity into products aimed at hedge funds, trading firms and fintechs that operate under traditional custody and compliance requirements. Off-chain crypto lending is estimated at about $33 billion, according to Galaxy, reflecting sustained demand from institutions that remain cautious about direct onchain exposure.

“This will be OTC crypto lending through a qualified custodian,” Sam MacPherson, co-founder of Phoenix Labs, the core contributor to Spark, told CoinDesk in an interview. “This market is much bigger than the DeFi lending market, and we’re able to issue the same kind of overcollateralized loans 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 across centralized exchanges, DeFi venues and qualified custodians under a single risk framework. That structure improves capital efficiency for hedge funds pursuing 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 breached.

Spark Institutional Lending is aimed at firms that prefer fully custodial participation. Through arrangements with providers such as Anchorage Digital, institutions can borrow against collateral held in regulated custody while accessing Spark-governed liquidity pools.

MacPherson said the design reflects hard lessons from past market failures. “The status quo is still unsecured lending to hedge funds, which can go horribly wrong,” he said. “By keeping positions overcollateralized and holding collateral with an intermediary, you dramatically improve safety for lenders.”

Spark has already supported institutional-scale deployments, supplying most of the liquidity behind Coinbase’s bitcoin borrowing product in 2025 and allocating hundreds of millions of dollars to support PayPal’s PYUSD. The new offerings formalize that approach into a broader institutional framework, positioning Spark as a conduit between on-chain stablecoin demand and off-chain capital markets.