SAEP-07: Spark Prime Brokerage - December 8, 2025

Spark's Operational Facilitator has placed a proposal into the voting system on behalf of nested contributor Phoenix Labs.

Review

The Spark community can hereby express support or opposition to the following changes, as described by the author of the proposal:

Summary

This proposal is submitted by Phoenix Labs in its role as a nested contributor, as defined in section A.6.1.1.1.2.2.2.2.1.2.1.1.1 - Root Edit Proposal Submission Requirements Exception For Nested Contributors of the Spark Artifact. The proposal recommends that Spark governance adopt the following operational processes and mandate for allocating funds via the Arkis Protocol prime brokerage infrastructure.

Background

Spark recently proposed a strategic investment into Arkis, a protocol and technology infrastructure provider facilitating a unified prime brokerage experience across defi and centralized exchanges. Details of the strategic investment proposal SAEP-04 can be seen here.

Prime brokerage is a critical, but currently underserved segment of the crypto financial services stack. By considering a borrower’s entire portfolio of collateral assets and other positions as a unified whole, prime brokers can account for cross correlation of assets and offset long and short positions. This allows primes to safely offer much better capital efficiency when financing delta neutral or long short / beta hedged portfolios. Prime brokerage also gives borrowers an improved UX, as they can seamlessly draw credit against their entire portfolio at once without needing to monitor and rebalance debt or margin collateral across multiple isolated leverage facilities.

Spark intends to use the Arkis protocol infrastructure to launch a prime brokerage and portfolio margin financing product, Spark Prime. This will allow the Spark Liquidity Layer to access yield opportunities from delta neutral or hedge fund strategies, but with an improved risk profile and greater transparency vs the alternative of lending against or directly investing into tokenized strategies. Recent market issues surrounding Stream Finance and related assets shows the danger of investing into non-transparent strategies. By financing via Spark Prime, not only will Spark have passthrough transparency across borrowers’ positions, but Spark will also have a senior secured interest in the positions and collateral assets underlying the strategy, rather than an interest in the strategy token which may have limited rights or safeguards in the case of impairment.

As part of the Arkis protocol configuration for the pool(s) where Spark Liquidity Layer will allocate capital, Spark governance will have admin control over protocol upgrades, which provides a key lever of control and risk mitigation. However, there are certain other aspects of protocol operation such as the Arkis margin engine, master account-sub account infrastructure on centralized exchanges, and legal agreements that exist outside the scope of the onchain smart contract system. This proposal provides a framework for Spark to manage both onchain and offchain configurations of the Spark Prime product powered on Arkis infrastructure, and delegates certain authority over operations to Spark Asset Foundation as the legal owner of SLL assets and onboarded entity at Arkis.

Proposal Details

We propose that Spark governance ratify and adopt the operational processes and mandate for allocating capital into Spark Prime, powered by Arkis protocol prime brokerage infrastructure.

Justification

The proposal includes a variety of constraints on the Spark Prime configuration and allocation strategy, including requirements for counterparties, collateral assets, trading venues, loan details, and withdrawal/recall triggers.

While liquidity provided on Spark Prime is entirely secured by collateral, with individual loans generally expected to be non-recourse against the borrower, we still believe that incidence of borrower insolvency will significantly increase the risk of nonperformance and losses on the collateralized loans, as the borrower may be unable or unwilling to top up collateral, may try to extract as much value from the position as possible to the detriment of lenders, or may be impacted by legal process. For these reasons, borrowers must attest to their solvency to borrow funds from Spark Prime, and becoming insolvent or entering administration will be cause to accelerate any outstanding loan balances.

Spark Prime is expected to primarily allocate across stablecoins and large-cap assets, including BTC, ETH, SOL, USDC, and USDT. However, we have received interest from prospective users to be able to margin certain other assets including USDe, HYPE, XRP, NEAR, and others, as well as staked or PT versions of the above assets and related derivatives contracts. Generally our approach is to accept mid-cap assets that meet minimum standards for liquidity, trading interest, and decentralization, but with more severe haircuts (equivalent to lower LTVs) and strict aggregate exposure limits. Haircut values are selected conservatively to align with expected price impact and market volatility of the given asset.

Spark Prime will also interface with custodial services and trading venues such as exchanges and custodians. We contain risk from these counterparties by only accepting positions on reputable venues, and by implementing exposure limits to avoid excessive concentration with a single counterparty. Over time we plan to onboard off-exchange-settlement providers to further reduce the counterparty risk attributable to centralized exchanges.

Loan terms supported by Spark Prime must confirm with the specification in this proposal, including limiting the duration for not greater than 1 month (loans may be rolled over or extended indefinitely but Spark Prime will not offer fixed rates or prevention from recall beyond this threshold), and requiring a minimum spread vs SOFR and the Sky Savings Rate to ensure adequate risk compensation.

Finally, Spark Prime is empowered to recall loans under certain conditions associated with excessive risk, including trading of unapproved products, borrower insolvency, insufficient returns, parameter changes, or emergency conditions. We expect that the Arkis team will execute any necessary changes within their purview to align with Spark Prime proposed terms in the Spark artifact, and Spark Asset Foundation as the owner of SLL assets and onboarded entity at Arkis is empowered to take action to ensure that the Spark Prime allocations and overall configuration are in alignment with the artifact.

Conflicts

As noted in SAEP-04, Phoenix Labs contributors have undertaken private investments into PRM LBS LTD on substantially equivalent terms to the proposed Spark strategic investment described above. The aggregate amount of funds invested by Phoenix Labs contributors is $495,000.

There are no additional conflicts to disclose.

The proposed Spark Artifact changes can be found in the following pull request: https://github.com/sky-ecosystem/next-gen-atlas/pull/138

Outcomes

• If "For" receives the most votes, the proposal will be approved. The associated pull request will be merged into Spark's artifact. When required, the listed changes will proceed to implementation by the relevant actors.
• If "Against" receives the most votes, the proposal will be rejected. No changes will be implemented.