Pencils Protocol was initially a comprehensive DeFi platform on the Scroll ecosystem, based on a series of product segments such as Farming, Vaults, and Auctions. It has not only become an important liquidity and yield hub on Scroll but also a significant LaunchPad market and liquidity pool, continuously providing momentum for the development of the Scroll ecosystem. It is reported that the protocol's peak TVL surpassed $400 million, backed by 700,000 users, which represents the market's recognition of Pencils Protocol.
In this new stage of ecological development, Pencils Protocol is expanding the narrative of the ecosystem. By launching a Yield-focused DEX called Pencils Swap, this DEX can connect with multiple chains and build an ecosystem aimed at all-chain traders and crypto projects, integrating yield and liquidity. As a foundational infrastructure for the new crypto era, Pencils Protocol is gearing up for the next phase of DeFi development.
Pencils Swap: The Liquidity and Yield Hub of the On-Chain World
Multi-chain integration has always been a main theme in the development of the crypto market. As more on-chain ecosystems emerge, it not only intensifies the dispersion of liquidity but also leads to liquidity imbalances between different on-chain ecosystems.
From the user's perspective, the liquidity imbalance among different on-chain ecosystems presents a potential yield opportunity. Some liquidity-scarce ecosystems typically offer more attractive DeFi yield opportunities to better capture liquidity. However, on the flip side, traders seeking these yields often need to switch back and forth between different on-chain ecosystems, resulting in a fragmented experience. Meanwhile, although potential yield opportunities are evident, DeFi applications in relatively niche ecosystems may face a series of issues due to a lack of liquidity, such as poor trading experiences and high yield risks (high slippage, impermanent loss, etc.), leading to unstable yields. Therefore, overall, aside from a few professional investors, the enthusiasm for liquidity arbitrage among the vast majority of investors is not high.
For some on-chain projects, especially relatively niche native on-chain projects, capturing liquidity (especially multi-chain liquidity) is becoming increasingly challenging. Although these projects may offer relatively attractive yields, as mentioned earlier, their efficiency in attracting liquidity remains low. In this market cycle, the discussion around DeFi narratives has significantly decreased, and the entire industry is facing severe internal competition, with generally low yields and users gradually losing interest in the lack of innovation in DeFi concepts. Additionally, established DeFi 2.0 projects like OlympusDAO and Tokemak have proven to be not sustainable liquidity solutions.
In fact, the barriers between chains are a major obstacle. The fragmented user experience and high costs of multi-chain exploration are suppressing users' enthusiasm for multi-chain yields. At the same time, crypto projects can typically only capture liquidity on their local chains, facing high costs and thresholds when expanding to multi-chain liquidity. Therefore, from this perspective, as long as the complexity brought by chain-native operations can be effectively simplified, it can reduce the costs, risks, and thresholds for users exploring yields while providing more quality options. Crypto projects can also obtain multi-chain liquidity through more optimized paths, continuously attracting active users.
The Yield-focused Pencils Swap launched by Pencils Protocol is precisely the "final push" to achieve this goal.
The Narrative of Pencils Swap
Pencils Protocol is launching Pencils Swap, primarily targeting yield aggregation and liquidity aggregation. By establishing a series of native cross-chain facilities, this layer can establish interoperability with chains that have different technical characteristics.
- Investor Yield Side
Pencils Swap can "aggregate" multi-chain ecosystems and seek arbitrage opportunities in DeFi protocols across different chains, such as potential arbitrage differences arising from different token prices between DEXs on different chains, or discrepancies in contract prices of the same asset on different derivatives DEXs. Currently, the Vaults section integrates a series of advanced LP yield strategies, allowing users to maximize yields on each transaction. Users can directly perform some LP strategy arbitrage on Pencils Swap based on Pencils Protocol's Vaults tools and directly receive yields within Pencils Swap. Users can also access key details such as routing, fees, and price impacts through the dashboard, and stay updated on historical transactions and liquidity conditions.
Compared to users performing LP arbitrage on different DEXs independently, Pencils Swap itself can significantly reduce slippage and enhance efficiency through automatic routing, creating extensive profit opportunities for LPs. Users not only have more predictability regarding their potential yields but also possess better and more stable profitability.
Similarly, for different traders, Pencils Swap has designed three different trading fee tiers to ensure that users have good flexibility and better profitability whether trading stable assets or highly volatile assets.
- 0.05%: Suitable for high-frequency trading and assets with relatively low price volatility.
- 0.30%: The general rate applicable to most trading pairs.
- 1.00%: Suitable for assets with high price volatility.
Thus, Pencils Swap not only provides good profitability for users but also offers a series of yield functionality tools to become the best tool for users to capture LP arbitrage yields from the multi-chain market.
- Liquidity Demand Side
Pencils Swap is not just a DEX with multi-chain strategy yield functions; it is also a liquidity aggregation hub that provides liquidity for multi-chain projects.
As a multi-chain yield aggregation hub, one end of Pencils Swap connects investors holding assets, i.e., liquidity sources, while the other end connects to liquidity pools of different DeFi protocols. As long as there are arbitrage opportunities, there will be a flow of funds.
Pencils Protocol aims to make Pencils Swap the ultimate platform for guiding liquidity. For dApps with liquidity needs, simply connecting to Pencils Swap allows them to connect with liquidity sources and other liquidity pools. With this liquidity-rich environment, on-chain projects can efficiently capture liquidity at minimal costs and achieve smoother launches with community-driven support.
Overall, Pencils Protocol is folding the barriers brought by chain-native operations, establishing interoperability with multiple chains, and enabling different demanders to seamlessly access multi-chain ecosystems, overcoming a series of obstacles brought by chain-native operations. Pencils Swap not only serves as a solution for users seeking LP arbitrage yields across chains but also provides a seamless experience for users seeking yields from multi-chain sources.
At the same time, for liquidity demanders, their goal of capturing liquidity is no longer limited to local chains. Through Pencils Swap's connection to multiple chains, it endows crypto projects with broader liquidity capture capabilities, significantly enhancing the efficiency of full-chain liquidity and injecting more vitality into the DeFi market while bringing new growth points.
A New Example of Composability: Pencils Swap + Auction, Envisioning a New LaunchPad Ecosystem
Pencils Protocol recently launched the Auction feature, with a community-centric LaunchPad platform being a major function of the Auction section. With the launch of Pencils Swap and its deep integration with the Auction section, Pencils Protocol is expected to further create a new paradigm for the multi-chain LaunchPad ecosystem.
With the support of Pencils Swap, the new LaunchPad ecosystem allows projects to capture funds across multiple chains in a single launch. Based on Pencils Swap, users from different on-chain ecosystems can participate in the launch through Pencils Swap as an aggregation entry, eliminating the need for projects to deploy on multiple LaunchPad platforms across chains, potentially saving costs and significantly enhancing user coverage and fundraising efficiency.
After the project launch, Pencils Swap can also better support the market cap management of the launched project tokens. In fact, there are differences in liquidity, trading volume, and other aspects among different chain ecosystems, which will present arbitrage opportunities for users. For Pencils Swap, as long as there are arbitrage opportunities, it means that it can attract a large number of arbitrage groups from multi-chain ecosystems to contribute liquidity to the tokens, significantly alleviating the subsequent market-making pressure on the tokens.
Similarly, through a new collaboration with the Vaults section, based on a series of arbitrage strategies, it can not only bring considerable LP arbitrage yields to users holding tokens participating in the launch, further enhancing user retention and loyalty but also provide more substantial profit effects for the launched projects. Even project teams themselves can act as arbitrageurs, artificially creating arbitrage opportunities and price differences to attract external arbitrageurs and traders, greatly increasing the on-chain activity and trading volume of the project, as well as the data of token-holding users, laying a foundation for the project to move towards a broader market.
Thus, through the new combination of Pencils Swap and Auction, it not only provides a foundation for projects to launch simultaneously across multiple chains but also further supports token market cap management, profit for token holders, project income, and even future long-term development after the tokens are launched to the market. This new paradigm combination is also laying the groundwork for the transformation of the LaunchPad market.
In the long run, Pencils Swap will not just be a DEX; it will further develop into an important infrastructure in DeFi and provide momentum for a resurgence in DeFi.
Pencils Liquidity Incentive Program
To further promote the comprehensive development of the ecosystem, Pencils has launched a liquidity incentive program following the successful launch of the Swap feature. This program aims to provide generous rewards for liquidity providers while offering additional incentives for Farming participants, ensuring users enjoy the highest APR and quality experience across chains.
Activity Time:
Start Time: December 19, 2024, 08:00 AM (UTC)
End Time: January 1, 2025, 07:59 AM (UTC)
Liquidity Pools:
To participate in this event, liquidity providers must increase liquidity for the following designated pairs:
- ETH/USDC
- ETH/USDT
- ETH/STONE
- USDT/USDC
- ETH/wrsETH
Users can officially join the event by completing the "Add Liquidity" operation for the designated currency pairs through the Pencils liquidity page.
- Reward Mechanism
Basic Rewards:
By providing liquidity for the designated trading pairs, participants will share from the platform's DAPP income reward pool, with total rewards up to 20,000 DAPP!
- Additional Staking Rewards
During the event, users who continuously stake in any Pencils Farming pool for more than 10 days while participating in this liquidity incentive activity will enjoy an additional 20% liquidity reward boost in their DAPP earnings.