Decentralized finance (DeFi) protocol Spark is pushing one of DeFi’s deepest stablecoin liquidity pools further into institutional markets, unveiling 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 during the Hong Kong Consensus 2025 on Wednesday.
The new offerings extend more than $9 billion in stablecoin liquidity deployed to products for hedge funds, trading firms and fintechs that operate under traditional custody and compliance requirements. Off-chain crypto lending is estimated at around $33 billion, according to Galaxy, reflecting sustained demand from institutions that remain cautious about direct on-chain exposure.
“These will be OTC crypto loans through a qualified custodian,” Sam MacPherson, co-founder of Phoenix Labs, the main contributor to Spark, told CoinDesk in an interview. “This market is much larger than the DeFi lending market, and we are able to 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 sites and qualified custodians within a single risk framework. This structure improves capital efficiency for hedge funds pursuing strategies such as trading perpetual futures, while providing lenders with more direct exposure to funding rates.
The system is powered by prime broker Arkis’ margin and liquidation engine, which can automatically unwind positions across all venues if portfolio risk thresholds are exceeded.
Spark Institutional Lending is aimed at businesses that prefer 100% custodial ownership. Through agreements with providers such as 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 unsecured lending to hedge funds, which can go very wrong,” he said. “By maintaining overcollateralized positions and holding collateral with an intermediary, you significantly improve lender security.”
Spark has already supported institutional-scale deployments, providing the bulk of the liquidity behind Coinbase’s 2025 Bitcoin borrowing product and allocating hundreds of millions of dollars to support PayPal’s PYUSD. The new offerings formalize this approach within a broader institutional framework, positioning Spark as an intermediary between on-chain stablecoin demand and off-chain capital markets.
