# 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.
