Pencils Protocol is a one-stop comprehensive yield platform in the Scroll ecosystem, which uses DeFi functions as a lever to continuously expand into areas such as LRT, LaunchPad, AI, FHE, and RWA based on Farming, Vaults, Auctions, and other features.
Recently, the Pencils Protocol ecosystem has seen significant progress, one being that the $DAPP token has completed IDO on a series of platforms like Tokensofe, Bounce, and Coresky, selling out in a short period. It will subsequently be listed on Gate and Bybit for market trading, along with a series of Trade to Earn and Staking activities. Another is the launch of the Vaults product, which not only signifies the comprehensive opening of the Pencils Protocol ecosystem's yield system but also stretches the ecosystem narrative in a broader direction, providing deeper empowerment for the DAPP token, which is a substantial positive development.
Fundamentals of the Vaults Product
The Vaults product is an important part of the Pencils Protocol ecosystem's yield system, supporting users to maximize returns through innovative product design by aggregating leveraged yields and obtaining maximum returns with minimal thresholds via automated smart contracts.
For example, in its leveraged mining feature, users can deposit certain assets (currently mainly LRT assets like pufETH) and choose 2x leverage to amplify their returns, which can convert a 10% annual return rate into a 30% return rate. The complexity of the smart contract management of the Vaults product allows funds to be placed into liquidity pools and downstream strategies while securely holding LP tokens.
Of course, the user-end product returns of Vaults do not stop there; it further expands in collaboration with Mind Protocol, capturing income for users in cutting-edge fields such as AI and FHE. Mind Protocol itself aims to provide security for different networks (such as Zama, Fhenix, Singularity, and Bittensor) based on re-staking schemes. Pencils Protocol will be an important partner for Mind Protocol, helping to validate the Mind Network ecosystem based on the current large LRT asset staking system, further enhancing the security of AI and PoS ecosystems while providing higher returns for Pencils Protocol participants.
Therefore, when users participate in the Vaults product, they will be able to achieve multiple returns and realize differentiated competition. Users holding $DAPP tokens are expected to increase their income, which will provide essential demand for the $DAPP token.
Significance of the Product
Liquidity Hub: The Vaults product itself is a liquidity hub, providing stable and high returns through the Farming Pool and enhanced returns through Vaults, attracting a large amount of liquidity. This liquidity can further act in different protocols and serve as a liquidity pool for various external DeFi protocols, which will not only drive Pencils Protocol to maintain high TVL but also promote the further prosperity of the Scroll ecosystem.
Enhancing Capital Utilization: With Pencils Vaults, large whales can safely manage assets without manual involvement, which not only increases liquidity but also makes the ecosystem more vibrant and profitable for all participants.
Enhancing Ecosystem Activity and Node Revenue: Every operation within the Vaults system contributes to increasing the activity of nodes operating in the Scroll ecosystem. With the active transfer and deployment of liquidity, nodes will generate more revenue, and the entire Scroll infrastructure will become more integrated into the larger DeFi framework, creating a thriving, interconnected DeFi network that benefits all participants.
Who Will Use Vaults & Who Will Be More Inclined to Hold $DAPP Tokens
So for the Vaults product, many roles have essential needs.
Ordinary investment users hope to further enhance their returns through the Vaults product, and holding $DAPP tokens is evidently the best way.
AI and FHE projects within Mind Protocol wish to further enhance voting rates in the network through Pencils Protocol products. These protocols are expected to provide $DAPP token incentives to users in the future, similar to Curve's "bribery" to enhance network security, which will create essential value for the $DAPP token.
DeFi and LRT projects with liquidity needs expect to connect to the Vaults product and capture liquidity from Pencils Protocol's large pool, while projects holding $DAPP tokens are expected to further enhance their weight in the Vaults product, attracting larger liquidity.
Whale players expect to use the Vaults product to manage assets and use $DAPP tokens as a catalyst to capture higher returns; the demand for $DAPP tokens among whale users remains substantial.
Overall, just from the Vaults segment, there is a high demand for $DAPP tokens in the market. Meanwhile, 30% of the revenue generated from the Vaults segment will be used to buy back and burn $DAPP tokens, which will further accelerate deflation. From this perspective, the launch of the Vaults product is undoubtedly a significant positive development.
As $DAPP continues to be listed on platforms including Gate, Bybit, Kucoin, and Bitget, it may represent a new milestone, indicating that the Pencils Protocol ecosystem will enter a new phase and fully launch, with the $DAPP token also set to experience explosive growth.