My understanding is pretty superficial. I'd love to play around with it to see how it feels.

One thing I'm not sure about is when the UTXO does exit onchain and it's split up into 100's or 1000's of outputs. Maybe they have something in place that stops anyone with <5000 sats from losing their money.

It's basically a federated state chain. Shinobi wrote about state chains recently for BM: https://bitcoinmagazine.com/technical/bitcoin-layer-2-statechains. He doesn't touch on Sparkchain but it'll tell you most of what you need to know.

The main tradeoffs stem from it relying on a central coordinator (in spark's case a federation of coordinators):

Spark's docs are very well written, so I'd go there: https://docs.spark.money/home/welcome

Fake L2

Just another wrapper on a custodial service to scam the regulator and obfuscate the custodian

The birth of Spark has immediately attracted the interest of other Bitcoin projects. Among the various partnerships established, the multisig wallet Theya has integrated Spark to offer its users simpler and faster bitcoin and stablecoin payments.

Last May, Breez announced a new implementation of the Breez SDK based on Spark, which allows developers to integrate Lightning payments directly into their apps through Spark. As part of this collaboration, Breez will also act as a Spark Service Provider, helping to expand the ecosystem. According to the two companies, this partnership will provide developers with new Bitcoin-native tools for use cases such as streaming payments, international remittances and micro-payments for AI.

And Blitz has partnered with Spark on a web wallet

its Lightspark's answer to the ln challenges. (inbound liquidity, always online, etc) the company is run by David Markus (ex paypal, libra project at facebook) Technically its state-channels with a few tradeoffs. You can't unilaterally exit without permission as of today from what I understand. Just listened to Matt C on TFTC podcast and he seemed to think it would work well for nostr zaps temporarily and then upgrade to say phoenix once you had enough to open a channel. Similar to Zeus's new upgrade of using ecash to receive immediately without a channel then graduating to a ln channel.

There's a (partial) risk assessment here: https://www.bitcoinlayers.org/layers/spark

"Built on Bitcoin"

Spark feels like a middle ground between fully custodial stuff like Liquid and fully trustless layers like Lightning. The federation setup means there’s some risk if those coordinators act sketchy, but being able to pull your bitcoin back on chain yourself is a big deal. The catch is that exit locks your funds for weeks, so it’s more of a backup plan than something you wanna use every day for quick payments.

Then there’s the token layer with its freezing powers, which is kinda sketchy if you care about censorship resistance even if it doesn’t touch your base bitcoin. Overall, Spark might work for some niche cases, like moving small amounts inside a trusted group, but it’s not the fully trustless future Bitcoin needs. Just another tradeoff in the messy Layer 2 world worth watching but not something to bet on replacing Lightning anytime soon.