Pencils Protocol was initially a comprehensive DeFi platform on the Scroll ecosystem, based on a series of product segments such as Farming, Vaults, and Auction. It has not only become an important liquidity and yield hub on Scroll but also a vital LaunchPad market and traffic pool, continuously providing momentum for the development of the Scroll ecosystem. It is reported that the protocol's peak TVL exceeded $400 million and is backed by 700,000 users, representing market recognition for Pencils Protocol.
In this new stage of ecosystem development, Pencils Protocol is expanding the narrative of the ecosystem. By launching a yield-focused DEX Pencils Swap, this DEX can connect with multiple chains and build an ecosystem oriented towards all chain traders and crypto projects, integrating yields and liquidity. As a foundational facility for the new crypto era, Pencils Protocol is preparing for the next stage of development in DeFi.
Pencils Swap: The Liquidity and Yield Hub of the On-Chain World
Multi-chain has always been a main theme of the development of the crypto market. With more and more chain ecosystems entering the market, it not only intensifies the dispersion of liquidity but also leads to liquidity imbalance between different chain ecosystems.
From the user's perspective, the liquidity imbalance between different chain ecosystems is a potential yield opportunity. Some liquidity-scarce ecosystems often offer more considerable DeFi yield opportunities to better capture liquidity. On the other hand, traders seeking these yields usually need to switch back and forth between different chain ecosystems, leading to a fragmented experience. At the same time, although potential yield opportunities are evident, for relatively scarce liquidity niche ecosystems, DeFi applications themselves still face a series of issues such as poor trading experience and high yield risks (high slippage, impermanent loss, etc.) due to lack of liquidity, resulting in unstable yields. Therefore, overall, except for a few professional investors, the vast majority of investors do not have high enthusiasm for liquidity arbitrage.
For some on-chain projects, especially relatively niche native chain projects, capturing liquidity (especially multi-chain liquidity) is becoming increasingly difficult. Although these projects may offer relatively considerable yields, as mentioned earlier, their efficiency in attracting liquidity remains low. In this market cycle, discussions about DeFi narratives have significantly decreased, and the entire industry is facing severe internal competition, with generally low yields, and users are gradually losing interest in the lack of innovation in DeFi concepts. Moreover, established DeFi 2.0 ecosystem projects like OlympusDAO and Tokemak have also proven to be not enduringly effective liquidity solutions.
In fact, the divide between chains is a major obstacle. The fragmented user experience and high costs of multi-chain exploration are suppressing user enthusiasm for multi-chain yields. Meanwhile, crypto projects typically can only capture liquidity on their local chains and also face high costs and barriers when extending to multi-chain liquidity. Therefore, looking in this direction, as long as the complexity brought by native chains can be effectively simplified, it can reduce the costs, risks, and barriers for users exploring yields while providing more quality choices. Crypto projects can also acquire 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, aimed primarily at yield aggregation and liquidity aggregation. By establishing a series of native cross-chain facilities, this layer can achieve interoperability with chains that have different technical characteristics.
1. Investor Yield Side
Pencils Swap can 'aggregate' multi-chain ecosystems and seek arbitrage opportunities within the DeFi protocols of different chains, such as potential arbitrage differences arising from price discrepancies of the same token between different chain DEXs, or contract price differences of the same asset on different derivatives DEXs, etc. Currently, the Vaults section has integrated a series of advanced LP yield strategies, allowing users to maximize returns on every transaction. Users can directly perform some LP strategy arbitrage based on Pencils Protocol's Vaults tool on Pencils Swap and receive rewards directly on Pencils Swap. At the same time, users can also access key details such as routing, fees, and price impacts through the dashboard and stay informed about historical transactions and liquidity conditions.
Compared to users arbitraging LP by themselves across different DEXs, Pencils Swap can significantly reduce slippage and improve efficiency through automatic routing, creating a wide range of profit opportunities for LPs. Users not only have greater 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.
l 0.05%: Applicable to high-frequency trading and assets with relatively low price volatility.
l 0.30%: Applicable to general rates for most trading pairs.
l 1.00%: Applicable to assets with high price volatility.
Thus, Pencils Swap not only provides good profitability for users but also offers a series of yield functionality levers to become the best tool for users to capture LP arbitrage profits from the multi-chain market.
2. Liquidity Demand Side
Pencils Swap itself is not just a DEX with multi-chain strategy yield functions; it is also a liquidity aggregation hub providing liquidity for multi-chain projects.
As a multi-chain yield aggregation hub, Pencils Swap connects investors holding assets, i.e., liquidity sources, and connects with the liquidity pools of different DeFi protocols. As long as there are arbitrage opportunities, funds will flow.
Pencils Protocol has built Pencils Swap into the ultimate liquidity-guiding platform. For dApps with liquidity needs, simply integrating with Pencils Swap allows for connection with liquidity sources and other liquidity pools. With this liquidity-rich environment, on-chain projects can efficiently capture liquidity at minimal cost and achieve smoother launches with community-driven support.
Overall, Pencils Protocol is overcoming the obstacles posed by the native chains, and by establishing interoperability with multiple chains, it is enabling different demanders to seamlessly access multi-chain ecosystems, overcoming a series of obstacles brought by native chains. Pencils Swap not only serves as a resolver for users seeking LP arbitrage profits across multiple chains but also provides a seamless experience for users seeking yields across chains.
At the same time, for liquidity demanders, their goal of capturing liquidity is no longer limited to the local chain. Through Pencils Swap's connection to multiple chains, it empowers crypto projects with broader liquidity capture capabilities, significantly improving overall chain liquidity efficiency, injecting more vitality into the DeFi market while bringing new growth points.
A new example of composability: Pencils Swap + Auction, envisioning a brand new LaunchPad ecosystem.
Pencils Protocol recently launched the Auction feature, where one community-centered LaunchPad platform is the main 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 multi-chain LaunchPad ecosystems.
With the support of Pencils Swap, the brand new LaunchPad ecosystem allows projects to capture funding across multiple chains in one launch. Based on Pencils Swap, users from different chain ecosystems can participate in the launch through Pencils Swap as an aggregation entry, eliminating the need for projects to launch on multiple LaunchPad platforms, which is expected to save costs and significantly improve user coverage and fundraising efficiency.
After the project launch, Pencils Swap can also better support the market cap management of tokens. In fact, different chain ecosystems have disparities in liquidity, trading volume, etc., which will create 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 reducing the market-making pressure on the tokens later.
Similarly, through a new collaboration with the Vaults section, based on a series of arbitrage strategies, it can not only bring considerable LP arbitrage profits to token-holding users participating in the launch, further enhancing user retention and loyalty but also bring more considerable profitability effects to the launch projects. Even the project parties themselves can act as arbitrageurs, artificially creating arbitrage opportunities and price differences to attract external arbitrageurs and traders' participation, significantly increasing the project's on-chain activity and trading volume, as well as user data, providing a foundation for the project to move into a broader market.
Thus, through the new combination of Pencils Swap and Auction, it not only provides a foundation for multi-chain synchronized launches but also, after the tokens are market-facing, can further empower token market cap management, token holder profits, project revenues, and even future long-term development. The 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 also further develop into an important infrastructure in DeFi and prepare for another explosion of DeFi.
Pencils Liquidity Incentive Program
To further promote the comprehensive development of the ecosystem, Pencils launched the liquidity incentive program after successfully launching the Swap function. This program aims to provide generous rewards for liquidity providers while offering additional incentives for Farming participants, ensuring users enjoy the highest APR across chains and a quality experience.
Event time:
Start time: December 19, 2024, 08:00 AM (UTC)
End time: January 1, 2025, 07:59 AM (UTC)
Liquidity Pool:
To participate in this event, liquidity providers must increase liquidity for the following designated pairs:
l ETH/USDC
l ETH/USDT
l ETH/STONE
l USDT/USDC
l ETH/wrsETH
Users only need to complete the 'Add Liquidity' operation for the specified currency pair through the Pencils liquidity page to officially join the event.
1. Reward Mechanism
Basic rewards:
By providing liquidity for designated trading pairs, participants will share from the platform's DAPP income reward pool, with total rewards up to 20,000 DAPP!
2. Additional Staking Rewards
During the event period, users who continuously stake in any Pencils Farming pool for more than 10 days and participate in this liquidity incentive activity will enjoy an additional 20% liquidity reward boost in DAPP earnings.