After Spark, Sky bets on Grove, is a new RWA rising star on the scene?

Grove receives a $1 billion investment from Sky, will it bring about a wealth effect similar to Spark?

Written by: Alex Liu, Foresight News

Sky Ecosystem (formerly known as MakerDAO) launched a new decentralized finance protocol Grove Finance on June 25, backed by a $1 billion initial funding allocation from Sky Ecosystem to promote investments in tokenized credit assets, primarily collateralized loan obligations (CLOs).

Grove is incubated by Grove Labs, a blockchain entity under Steakhouse Financial, with co-founders including Mark Phillips, Kevin Chan, and Sam Paderewski among others. The core team has extensive backgrounds in traditional finance and DeFi, having worked at institutions such as Deloitte, Citigroup, BlockTower, and Hildene.

Steakhouse Financial has previously played a key role in bringing real-world assets (RWA) into the Sky ecosystem, so the arrival of Grove is seen as another important attempt by Sky to connect more traditional credit markets to DeFi.

The product positioning and technical architecture of Grove

Grove is committed to building "institutional-grade credit infrastructure," functionally bridging decentralized finance with the regulated traditional credit asset market. The protocol allows DeFi projects and asset management institutions to route idle funds through on-chain governance, investing in strictly compliant credit products (currently focusing on AAA-rated CLO strategies) to obtain returns independent of cryptocurrency market fluctuations.

According to reports, the Sky ecosystem will invest seed funding into the Anemoy AAA-rated CLO strategy fund (JAAA) managed by Janus Henderson, which was launched in collaboration with the Centrifuge platform and is the first AAA-rated CLO strategy that can be traded on-chain.

The Grove protocol operates in an open-source, non-custodial manner, aiming to build a "DeFi - traditional financial capital channel" to improve capital efficiency, reduce transaction friction, and provide programmable and diverse funding allocation capabilities for asset managers and DeFi protocols. Official materials indicate that Grove can establish new global distribution channels for asset management companies, provide high-end on-chain capital partnerships for various protocols/DAOs, and enhance the credibility and sustainability of the entire DeFi ecosystem.

In short, Grove's technical architecture revolves around on-chain governance and automated capital routing, transforming stablecoins or other idle capital held by crypto protocols into institutional-grade credit asset investments, thereby optimizing returns and risks.

The similarities and differences between Grove and Spark

Grove and the Spark protocol in the Sky ecosystem both belong to the MakerDAO (Sky) "Endgame" overhaul plan as autonomous sub-units (subDAO, also referred to as "Star"), but there are significant differences in their positioning and mechanisms.

Spark launched in 2023, is the first Star of the Sky ecosystem, focusing on the yield engine of "stablecoin + RWAs". Spark relies on the DAI/USDS stablecoin reserves issued by Sky to launch products like SparkLend, Spark Savings, and Spark Liquidity Layer (SLL). Users can deposit USDS, USDC, or DAI to participate in lending or farming yields and allocate funds to asset pools such as DeFi lending, CeFi lending, and tokenized government bonds through a dynamic risk engine, thereby obtaining relatively stable returns.

Spark is deployed across multiple chains, currently managing stablecoin liquidity exceeding $3.5 billion, and has launched the native governance token SPK (which was airdropped to the community). Users can earn additional rewards through staking SPK, participating in governance, and community incentives (Community Boost). The Spark team emphasizes transparency and auditability, with target returns slightly higher than U.S. Treasury bonds to meet the demand for risk-adjusted returns.

In contrast, Grove is more focused on large institutional-level credit. Its initial deployment of $1 billion is aimed at connecting with Amundi's AAA-rated CLO fund, indicating that Grove targets users with larger capital scales and higher demands for yield stability (such as asset management companies and DeFi protocols). Currently, Grove has just launched, and it is too early to introduce the governance token; its incentive mechanism mainly reflects enabling DeFi projects to "activate idle reserves and obtain yields from higher quality assets."

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In simple terms, Spark can be seen as a yield product for ordinary stablecoin holders within the Sky ecosystem, while Grove serves as the infrastructure protocol for building on-chain credit channels for large projects and institutions. Both are part of the Sky ecosystem's "Endgame" strategy, focusing on bringing real assets on-chain: Spark enriches stablecoin yields with RWA such as government bonds, while Grove enriches DeFi asset allocation with credit assets like secured loans.

It can be seen that Grove is focusing on completing the institutional credit puzzle outside of the Spark system in the RWA track.