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Compared to traditional financial (TradFi) institutions, decentralized finance (DeFi) protocols offer a plethora of benefits to users. Scalability, flexibility, access democratization and transparency are among the key advantages of trading and investing on-chain rather than through banks and other TradFi entities.
However, along with its benefits, the DeFi industry’s many associated issues have put the brakes on its wider adoption. One such area is compliance with anti-money laundering (AML) requirements. Privacy of customer transactions is another area where DeFi protocols may struggle due to the public nature of blockchain platforms. To complicate things even more, AML regulations and transaction privacy are often onerous to optimize at the same time.
Pencils Protocol (DAPP), a leading DeFi application on the Scroll Layer 2 network, has adopted a number of measures to ensure that AML requirements, transaction privacy, scalability and flexibility of on-chain operations are all maintained simultaneously in a system commonly referred to as permissioned DeFi. This provides a holistic solution whereby users can enjoy both the perks of DeFi — such as efficiency, transparency and autonomy — and the benefits of TradFi, namely security and compliance. The protocol acts as a comprehensive DeFi solution that creates secure and flexible trading opportunities with products such as auctions, yield aggregator services, farming vaults, restaking and more.
Having started out in early 2024 under the name PenPad (PDD), the project rebranded to Pencils Protocol in May 2024 and launched its native token in September. Despite being one of the newest DeFi protocols in the Scroll ecosystem, Pencils Protocol has already grown to become the network's largest DeFi app (as of Oct 8, 2024), with a total value locked (TVL) of around $286 million.
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