This post originally appeared on the Wallfacer Labs Substack
In our first post about crvUSD and GHO, we wrote:
Will MakerDAO and Curve view GHO as an adversary? Or can GHO, DAI, and crvUSD all grow together in an interwoven network of D3Ms and stableswap pools?
With the pending launch of Spark, we are beginning to see clearer lines of competition between “DeFi Giants”.
MakerDAO stands at a pivotal moment in its long (by DeFi timelines) history.
Voters recently approved the “Constitution”, a significant step towards “The Endgame Plan” which aims to revamp the governance, incentives, and roadmap of the protocol.
Though some criticize the Endgame, we believe the recently announced Spark Protocol showcases its strengths.
In this post, we will dive into the Endgame Plan, Spark Protocol, the concept of “Maker Nation,” and how Spark Protocol fits into MakerDAO’s long-term vision.
Explaining the Endgame in a few hundred words is challenging, but for readers who may be unfamiliar, let’s try.
When MakerDAO’s founder Rune Christensen introduced the Endgame Plan in May 2022, he described it as a way to:
Create a finite roadmap for MakerDAO that step by step leads to a predetermined, immutable end state many years out in the future, while significantly improving governance dynamics and tapping into the raw power of modern DeFi innovation.
A key aspect of this plan is shifting much of MakerDAO’s complexity away from the “MakerDAO core” and delegating more responsibility to SubDAOs (sometimes called “MetaDAOs”).
SubDAOs are smaller, specialized DAOs that maintain strong connections to the MakerDAO core. Crucially, these SubDAOs can also launch their own tokens, creating new incentive opportunities for users and additional potential for builders.
As Rune said recently:
SubDAOs function as semi-independent specialized divisions within MakerDAO. They have their own governance tokens and governance processes, enabling rapid parallelized growth, specialization, and decision-making. Outsourcing day-to-day complexity to SubDAOs significantly reduces the amount of work and complexity that Maker Governance needs to deal with.
The primary tasks of SubDAOs include maintaining decentralized frontends, allocating Dai collateral, handling operational efficiency risk, marginal decision-making, and experimenting with innovative products and growth strategies. SubDAOs reuse key governance processes and tools from MakerDAO to streamline their operations.
The team behind Spark Protocol “got it,” and in October 2022 announced plans to become the first “Cluster” (the stage before officially becoming a “SubDAO”) and outlined what would eventually become Spark Protocol.
As hexonaut wrote at the time:
We want to bring to life new products on top of Maker with the best rates in the market due to the low cost of capital via D3M injection. Our solutions will provide seamless, high-quality user experiences all with best-in-class security practices. Safety and scale is our mission to support the DAI ecosystem.
Four months later in early February, MakerDAO contributors @hexonaut, @Nadia, and @tadeo announced the launch of Phoenix Labs, a blockchain R&D company developing the ‘Spark Protocol’.
Spark Protocol is an AAVE V3 fork focused on supporting the MakerDAO ecosystem and its products (namely, DAI).
Phoenix Labs plans to make all code open, owned by MakerDAO, and available for use by other teams under a revenue share agreement using the “Plug and Play” model of the Endgame proposal.
Spark Protocol will grow the DAI supply by treating DAI as a ‘first-class citizen’ and, in some ways, being more efficient than minting DAI through a CDP (e.g., allowing for collateral hypothecation to offset borrowing costs, as AAVE does currently).
Spark will have its own lending engine and be connected to MakerDAO via a D3M. Spark’s goal is not to replace Maker core vaults, but to provide an option for users who want to lend out their collateral for more yield.
In July 2021, longtime MakerDAO contributor Mariano.eth posted on the MakerDAO forums with a very humble title, “Question about future products”.
Nearly a year before Rune introduced EtherDAI as a part of the Endgame plan, Mariano suggested that MakerDAO introduce both:
He also introduced the idea of “Maker Nation”:
All this arises because I feel that we have to use the capital we have to create products that reaffirm MakerDAO as a leader, in pursuit of an ideal called “Maker Nation”
In this Maker Nation, I would like to see a whole range of Dai-based products where each of them is hierarchically connected to another, always having Dai and Vaults as the beating heart.
Few protocols in crypto generate significant protocol revenues (especially when adjusted for token inflation).
The sectors that generate the most revenue (and retain the most earnings*) are:
*excluding token rewards **not DeFi, but we can still track Opensea revenues on-chain
As Steakhouse Financial highlights in MakerDAO: 2022 Financial Results and Retrospective, MakerDAO earned 65mm in revenues in 2022, with 46mm worth of expenses.
MakerDAO is unique in that it has generated fees for years without token emissions. This has allowed it to build a significant economic moat, which could enable it to add higher-margin businesses like Spark Protocol.
The challenge lies in execution, as is often the case with startups. One must ask if MakerDAO can out-execute its peers.
As Luca Prosperi says:
Most OGs have started flexing to steal market share from others. A phase of great convergence has begun, starting around the most successful product to date: stablecoins.
Of the top-5 protocols by TVL today (Lido, MakerDAO, AAVE, Curve, and Uniswap):
So we ask:
MakerDAO is the OG and, to many, is viewed as the most robust and reliable DeFi protocol. But is it the most innovative or fast-moving?
Some key observations:
The Endgame plan is an ambitious attempt to transform MakerDAO into a first-of-its-kind “superprotocol” capable of expanding into higher-margin businesses within DeFi. The success of this strategy will depend on whether MakerDAO can attract teams like Spark (Phoenix Labs) and foster a culture that supports innovation.
Time will tell…
First published on May 3, 2023