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, 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 facility for the new era of crypto, Pencils Protocol is gearing up for the next phase of DeFi development.
Pencils Swap: The Liquidity and Yield Hub of the On-Chain World
Multichain has always been a main theme in the development of the crypto market. As more and more on-chain ecosystems face the market, 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 between 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 other hand, traders seeking these yields often need to switch back and forth between different on-chain ecosystems, resulting in a highly fragmented experience. At the same time, although potential yield opportunities are evident, for relatively illiquid niche ecosystems, DeFi applications themselves face a series of issues such as poor trading experience and high yield risks (high slippage, impermanent loss, etc.) due to a lack of liquidity, making yields unstable. Therefore, overall, except for 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 capturing multichain liquidity) is becoming increasingly difficult. 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 the DeFi narrative has significantly decreased, and the entire industry is facing serious internal competition, with generally low yields, leading users to gradually lose 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. Fragmented user experiences and the high costs of exploring multichain options are suppressing users' enthusiasm for multichain yields. Meanwhile, crypto projects can typically only capture liquidity on their local chains, facing high costs and thresholds when expanding to multichain liquidity. Therefore, looking in this direction, as long as the complexities brought by chain-native 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 multichain 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 aimed at 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" multichain ecosystems and seek arbitrage opportunities within 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 segment 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 tool 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 themselves, Pencils Swap can significantly reduce slippage and improve 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 to become the best tool for users to capture LP arbitrage yields from the multichain market.
- Liquidity Demand Side
Pencils Swap is not just a DEX with multichain strategy yield functions; it is also a liquidity aggregation hub, providing liquidity for multichain projects.
As a multichain yield aggregation hub, one end of Pencils Swap connects investors holding assets, i.e., the source of liquidity, while the other end connects to 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 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, establishing interoperability with multichain, and enabling different demanders to seamlessly access multichain ecosystems, folding a series of obstacles brought by chain-native. Pencils Swap not only acts as a solver for users' intentions to capture LP arbitrage yields across chains but also provides a seamless experience for users seeking yields from multichain.
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 multichain, it endows crypto projects with broader liquidity capture capabilities, significantly enhancing the efficiency of full-chain liquidity, injecting more vitality into the DeFi market while bringing new growth points.
A New Example of Composability: Pencils Swap + Auction, A Vision for a New LaunchPad Ecosystem
Pencils Protocol recently launched the Auction feature, where a community-centric LaunchPad platform is the main function of the Auction segment. With the launch of Pencils Swap and its deep integration with the Auction segment, Pencils Protocol is also expected to further create a new paradigm for the multichain 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 launch 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, different chain ecosystems have disparities in liquidity, trading volume, etc., 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 the multichain ecosystem to contribute liquidity to the tokens, significantly alleviating the subsequent market-making pressure on the tokens.
Similarly, through a new collaboration with the Vaults segment, 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 the project parties 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 the foundation for the project to move towards a broader market.
Therefore, through the new combination of Pencils Swap and Auction, it not only provides the foundation for projects to launch simultaneously across chains but also further supports token market cap management, token holder profits, project revenue, and even future long-term development after the tokens are market-facing. The new paradigm combination is also laying the groundwork for the transformation of the LaunchPad market.
In the long run, Pencils Swap will not only be a DEX but will also further develop into an important infrastructure in DeFi, gearing up for another explosion 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 function. 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.
Event 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 add liquidity for the following specified 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 specified currency pairs on the Pencils liquidity page.
1. Reward Mechanism
Basic Rewards:
By providing liquidity for the specified 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, users who continuously stake for more than 10 days in any Pencils Farming pool while participating in this liquidity incentive event will enjoy an additional 20% liquidity reward boost in DAPP earnings.