Security Measures and Partner Safeguards

Pencil Finance is built with a robust risk management framework to protect investors, enforce accountability from lending partners, and ensure overall protocol integrity.

Whitelisted Lending Partners

Only whitelisted, verified lending partners can tokenize student loan portfolios and raise funds. Whitelisting is managed by the core team based on factors such as:

• Lending history and track record

• Operational transparency

• Portfolio quality and underwriting standards

In the future, Pencil will implement:

• KYB (Know Your Business) onboarding for institutional access

• A DAO-based review and approval process via Pencil DAO for decentralized vetting

Lender-First Junior Subscription

Every lending partner is required to stake capital into the Junior Tranche before opening the bundle to external investors. This requirement ensures:

• Direct exposure to first-loss risk

• Strong alignment between lender and investor interests

• A built-in risk buffer for the Senior Tranche

Smart Contract Safeguards

Pencil’s smart contracts are undergoing a professional third-party audit to ensure code integrity and minimize vulnerabilities. Additional protocol-level safety features include:

• Withdrawal queues to manage early redemption pressure

• Penalty fees to discourage speculative liquidity exits

• Modular contract architecture to allow secure upgrades and new feature deployment without disrupting capital flows

On-Chain Transparency

All financial movements—deposits, redemptions, repayments, and interest distributions—are recorded on-chain. Investors can monitor:

• Live NAV and bundle status

• Interest earned and principal outstanding

• Repayment consistency from lending partners

Future platform updates will include enhanced analytics dashboards for deeper visibility and informed portfolio management.