MakerDAO to Challenge Aave in DAI Market

Aave better watch its back.

On Wednesday, high-ranking members of MakerDAO, the No. 2 DeFi protocol and lender, released a plan to set up a new lending venture that will compete with Aave’s efforts in the market for DAI, Maker’s widely used stablecoin.

Dubbed Phoenix Labs, the new company will build products leveraging the MakerDAO protocol and DAI, and it plans to start by launching a decentralized lending market called Spark Protocol.

Stablecoin Battle

As it happens, Aave, a top DeFi lender itself, is developing its own stablecoin, GHO, which may eventually compete with DAI.

Phoenix Labs’s proposal requests an initial debt ceiling of 200M DAI from Maker’s DAI Direct Deposit Module (D3M) for Spark Protocol.

“Spark Protocol is being built to improve the DAI ecosystem,” Sam MacPherson, also known as Hexonaut, told The Defiant. “We’ve identified an advanced lending engine as the lowest-hanging fruit to deliver to users what they’ve been requesting from us.”

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The Defiant

The D3M allows lending protocols to integrate with MakerDAO so they can generate DAI at a fixed interest rate. The MakerDAO community voted to grant the DeFi lending protocol Compound access to the D3M in December.

Should the proposal pass, Spark users could mint DAI directly from the D3M.

MakerDAO, which has $7B in TVL, allows users to mint its DAI stablecoin against overcollateralized deposits.

Dashboard

Phoenix Labs was first announced on Maker’s governance forum in October 2022 by MacPherson, who is with Maker’s Protocol Engineering Core Unit.

MacPherson, who is also Phoenix Labs’ CTO, told The Defiant that the team formed last summer and began working on Spark Protocol towards the end of the year. He said Phoenix hasn’t received any funding and that the team is working on the project in their spare time.

Spark Protocol would serve as a front-end interface for using DAI.

Maker will own all products built by Spark. The code will be available for third-party teams to use under revenue-sharing agreements.

Spark’s first product would be Spark Lend, a money market protocol supporting ETH, Lido’s wstETH liquid staking derivative, WBTC, DAI, and SavingsDAI tokens. SavingsDAI are ERC20 tokens proposed by Phoenix that represent DAI deposited into the Maker’s Dai Savings Rate (DSR) protocol, which currently earns a 1% APY.

The money market protocol would be built on Aave v3, with Phoenix planning to send 10% of the profits generated by Spark’s DAI market to AaveDAO for two years.

Endgame

“Phoenix Labs supports the development of Free and Open Source Software so we are proposing payment to AaveDAO in exchange for the public goods they are providing,” MacPherson said.

Aave is the leading money market protocol with a TVL of $5B, according to The Defiant Terminal. Aave v3 accounts for $639M, according to DeFi Llama.

The news comes as MakerDAO is gearing up to embark on its “Endgame” roadmap.

subDAOs

The Endgame plan will overhaul Maker’s structure to accommodate the increasing complexity of its operations and seeks to address voter apathy concerning its governance process.

Maker will reorganize into a series of subDAOs tasked with overseeing specific aspects of its operations, while the scope of MKR governance will consolidate to focus on matters only relating to the core MakerDAO protocol and the DAI stablecoin.

SubDAOs will have their own native tokens. Spark Protocol hopes to become a subDAO in the future.