Pencil Finance Secures $10M for DeFi Student Loans

Pencil Finance, a decentralized lending protocol designed to bring student loan financing on-chain, has announced a significant development in its mission to transform student debt servicing. The protocol, co-incubated by Animoca Brands and HackQuest, has secured US$10 million in liquidity from Open Campus and Animoca Brands. This funding will be used as loan collateral to facilitate decentralized finance (DeFi) student loans on the Pencil Finance platform.

Pencil Finance operates on EDU Chain, a Layer 3 blockchain built on Arbitrum Orbit. EDU Chain is specifically designed for consumer-facing education apps and on-chain education finance, powered by the EDU token. The protocol connects global investors with trusted student loan originators through tokenized loan bundles, aiming to enhance transparency, efficiency, and accessibility in student loan financing.

The US$10 million investment from Open Campus and Animoca Brands underscores the growing interest in leveraging blockchain technology to address the urgent need for accessible and efficient financing solutions in the student loan market. Recent policy changes in the U.S. have put millions of borrowers at risk of defaulting on their student loans, highlighting the importance of innovative solutions in this sector.

Yat Siu, co-founder and executive chairman of Animoca Brands, emphasized the transformative potential of blockchain in education funding. He stated that by bringing student loans on-chain, the initiative aims to boost transparency, efficiency, and Web3 adoption for potentially hundreds of millions of students globally. This move is expected to have significant implications for the US$3 trillion student loan market.

Frank Li, co-founder of Pencil Finance, highlighted the revolutionary impact of blockchain technology on student lending. By bringing loans on-chain, Pencil Finance delivers transparency, efficiency, and global access, helping students unlock new educational opportunities. Harry Zhang, co-founder and CMO of HackQuest, echoed this sentiment, noting that on-chain loans empower students and open new opportunities for investors.

Through Pencil Finance’s student loan real-world-asset (RWA) protocol, whitelisted users can provide liquidity to loan pools. These users can choose to deploy capital to a Senior Tranche or a Junior Tranche, with the latter offering higher returns but also carrying first-loss risk. The protocol enables loans to be deployed and repayments to be managed transparently on-chain, ensuring a seamless and efficient process.

Pencil Finance issued its first loan this week, with the recipient being HackQuest. The loan proceeds will be used to incentivize student developers learning about EDU Chain on the HackQuest platform, demonstrating the practical application of the protocol in real-world scenarios.

Open Campus, the foundation behind EDU Chain, is a community-led decentralized autonomous organization (DAO) focused on building an on-chain education network. Core contributors to the Open Campus DAO include Animoca Brands, TinyTap, NewCampus, RiseIn, and HackQuest. Together, they are working to enhance the education system for teachers, learners, and institutions through innovative blockchain protocols and funding initiatives.

Animoca Brands, a leading Web3 company, leverages tokenization and blockchain to deliver digital property rights to consumers. The company operates Web3 businesses, provides digital asset advisory services, and manages a portfolio of investments in over 540 companies, including industry leaders in the blockchain and Web3 space. Animoca Brands' mission is to establish the open metaverse and its associated network effects, contributing to the broader adoption of blockchain technology.

HackQuest serves as the gateway to the Web3 development world, providing a comprehensive educational infrastructure that helps onboard developers and non-developers to the world of Web3. The platform believes that improving Web3 developer education is key to driving mass adoption of blockchain technology.

Pencil Finance, with its focus on real-world student loan financing, aims to turn student debt into a transparent and investable asset class. By using blockchain infrastructure, a dual-tranche capital structure, and smart contracts, Pencil Finance delivers structured, risk-adjusted returns backed by real-world student loan portfolios. This approach enables sustainable yield generation with tangible social impact, addressing the critical need for innovative financing solutions in the student loan market.