Understanding Scallop: A Comprehensive Overview

Key Insights

• Scallop is a decentralized money market protocol founded by Kris Lai and Donnie Chen. Launched in July 2023, Scallop aims to provide an institutional-grade lending platform by blending the foundations of Compound V3 and Solend V2 with the security and composability of Sui Move.
• Scallop is live exclusively on the Sui Blockchain. The protocol leverages Sui’s novel architecture to facilitate a low-cost platform with enhanced transaction flexibility and was the first DeFi protocol to receive a grant from Sui Foundation.
• SCA is the project’s native token, designed as an interoperable utility token. SCA can be locked for veSCA in order to unlock access to further platform utility.
• One of the key features on the platform is sCoins, Scallop’s tokenized debt instruments that are composable across various Sui DeFi protocols. The protocol also features Lending Collateral Separation, a design that ensures sufficient collateral for liquidation by separating deposits from collateral.
• As of September 2025, Scallop sits at $102.1 million in TVL. The protocol has also generated over $6 million in cumulative protocol revenue.

Introduction

Overcollateralized lending is a powerful financial primitive that allows borrowers to take out loans against collateral worth more than the borrowed amount. This process means that the borrower is able to obtain liquidity on their assets without having to sell them, allowing the borrower to benefit from any potential price appreciation of the collateral assets and avoid incurring a potential tax liability.

In DeFi, overcollateralized lending has become commonplace as assessing creditworthiness onchain is very difficult. Decentralized money market protocols allow users to borrow against their crypto assets without a financial intermediary such as a bank. These protocols are particularly valuable to participants who live in underdeveloped countries, where access to sufficient banking rails is often lacking. However, these users have historically been priced out of using onchain services due to high gas costs on the underlying network.

As regulatory frameworks around the use of dApps continue to evolve, institutional participants are another important user base exploring the value proposition of decentralized lending and borrowing protocols. These participants are often well capitalized and, as such, they require a high degree of security assurance before interacting with onchain protocols.

Scallop seeks to address the concerns and needs of both retail users and institutions by enabling overcollateralized lending services through a decentralized money market platform with institutional-grade quality and security on top of a low-cost, high-throughput blockchain.

Background

Scallop was founded in 2021 by Kris Lai and Donnie Chen. Initially built for Solana, the co-founders decided to pivot to Sui in an attempt to be a frontrunner on the newly launched network. The broader Scallop team is distributed across the Asia-Pacific (APAC) region and has diverse backgrounds including experience in DeFi, cybersecurity, CTF and algorithms contests, fintech, and quantitative trading.

The protocol has secured capital from several notable investing firms, including but not limited to CMS Holdings, 6th Man Ventures, DWF Labs, and UOB Venture Management. Notable angel investors like Dingaling, Pentoshi, Mario Nawfal, 0xSun, and Joe Takayama have also made investments. Scallop also has a close relationship with Sui Foundation and Mysten Labs, the core development team behind the Sui Blockchain. In January 2023, Scallop became the first DeFi protocol to receive a grant from Sui Foundation. This relationship was built upon in October 2024, when it was announced that Scallop had secured a strategic investment from Sui Foundation aimed at enhancing DeFi product offerings and adoption.

Technology

Sui-Native

Scallop is purpose-built for the Sui Blockchain, a delegated proof-of-stake Layer-1 (L1) designed for high scalability and low-latency transactions. Sui uses an object model for storage, where each individual object has a unique global ID. A key feature of Sui is a mechanism known as Programmable Transaction Blocks (PTBs) that allow for enhanced flexibility and functionality for transactions. PTBs allow users to call up to 1,024 unique operations in a single transaction, reducing the gas costs and computation required when executing each operation individually.

Scallop aims to leverage these features in order to create both a secure and highly functional money market platform. Sui is written in Move, a programming language that places an emphasis on security through resource-oriented programming and makes double-spend or token supply mismatch bugs impossible unless explicitly coded into logic. As a dApp on Sui, Scallop inherits these properties, which align with its goal of being a secure institutional-grade platform. Scallop also features a UI tool for building PTBs known as Scallop Tools. This feature allows users to build their own PTBs on the Scallop platform. Currently, Scallop Tools allow for a number of different operations to be conducted within a single transaction:

• Object Transfer: Users can transfer multiple objects to an address within a single transaction.
• Coin Transfer: Users can transfer multiple different tokens to an address within a single transaction.
• Multi-Recipient: Users can transfer multiple different tokens to multiple addresses within a single transaction.
• Coin Merge: Users can merge multiple coin objects into a single coin object.
• Memo Transactions: Users can insert a memo, or message, into a transaction.
• Compile Transactions: Users can combine multiple of the above operations into a single transaction.

Scallop also leverages Sui’s zkLogin feature, allowing users to create a Sui address using an OAuth credential. Zero-knowledge proofs provide both security and privacy, preventing attackers or third parties from accessing or linking a Sui address with its corresponding OAuth identifier. From a consumer perspective, user experience is enhanced as users are able to use zkLogin to create a Sui address with existing accounts like Google, Meta, Apple, or Twitch.

Scallop Lend

Scallop Lend is Scallop’s primary offering, providing users the ability to borrow and lend assets on Sui. While the protocol is based on architecture from Compound V3 and Solend V2, Scallop takes a distinct approach, featuring a trilinear interest rate model for borrowing rates. This model distinguishes three different phases that correspond to the utilization rate of a given liquidity pool. In periods of low utilization, borrowing rates are relatively low in order to incentivize borrowing. As utilization increases, borrowing rates increase slowly as utilization reaches an optimal range. If the pool crosses into a period of high utilization, borrowing rates drastically increase in order to prevent potential liquidity constraints. The specific criteria for different phases of utilization vary based on the type of asset being borrowed on Scallop. This three-phase model aims to improve capital efficiency via facilitating liquidity when there is an abundance, while maintaining the health of the protocol in moments of high utilization.

Scallop separates token deposits and collateral on the platform to improve risk management, as it’s imperative that the protocol always maintains sufficient collateral during liquidation events. The protocol uses borrowing incentives to drive demand for pool utilization, which in turn raises deposit rates for potential depositors.

When a lender supplies liquidity to a pool on Scallop, their position is represented as a Scallop Market coin known as an sCoin. sCoins are tokenized debt instruments that increase in value as interest is accrued. These tokens can be used on derivative platforms that involve debt obligations or exchanged for the supplied assets plus interest accrued.

Another core aspect of the protocol is the liquidation process for unhealthy borrower positions. Scallop features a soft liquidation mechanism that allows borrowers to protect their collateral while also maintaining the health and integrity of the protocol. Borrowers on Scallop are shown a risk level that indicates the health of their position and are notified via Notifi if they reach a user-defined risk level or when a liquidation occurs. Scallop’s risk management framework is based on two parameters, rather than a single loan-to-value (LTV) ratio. First, the liquidation factor defines how much collateral is needed before a position reaches its liquidation threshold and is used to calculate the required collateral value to support a user’s debt position. The second parameter that comprises Scallop’s risk level metric is the borrowing weight, which determines how much a user can borrow based on their collateral. The weight of the collateral varies based on the asset being borrowed, where more volatile assets result in a higher weighted borrow value. The dual-parameter model enables Scallop to dynamically calibrate its liquidation mechanism, ensuring proper risk management across the protocol. When a borrower’s position exceeds a risk level of 100%, the soft liquidation mechanism allows for a gradual restoration of the position’s health factor. Liquidators, an independent third party, are financially incentivized to repay the outstanding debt in exchange for the ability to purchase the at-risk borrower’s collateral assets at a discount. Only the necessary amount of collateral required to return the borrower’s position to a healthy state is sold, which differs from hard liquidation mechanisms, which automatically sell all of the borrower’s collateral in order to repay the debt.

Scallop users also have the ability to execute flash loans, a process that refers to borrowing an asset without having to deposit collateral and incurring interest by returning the assets within the same transaction. This strategy is commonly used by advanced DeFi users to arbitrage price inefficiencies across different markets. Scallop users can utilize this strategy on the dApp amongst the assets listed in the borrowing pool category.

Scallop Swap

Scallop also features a swap module on the platform, allowing users to swap between assets on Sui with no fees. The design aims to provide the best price execution for users by integrating with five of Sui’s leading DEX aggregators: Cetus, 7k, Aftermath, FlowX, and OKX DEX. As of September 2025, the total swap volume has exceeded $500 million, and over 330,000 total transactions have been executed.

X-Oracle

Oracles are an essential piece of blockchain infrastructure for dApps like Scallop, as they provide smart contracts with real-time data feeds. However, manipulation of these data feeds can lead to the exploitation of onchain protocols, especially if the protocol relies on a single oracle for its data source. Scallop aims to solve this problem through X-Oracle, a service that uses multiple oracles to cross-verify price data. A primary oracle provides pricing data, and the X-oracle design allows multiple verifier oracles to be plugged in to ensure accuracy. Currently, Pyth is the only oracle live on Scallop, as the team has concerns around the maturity of other services. Importantly, Scallop has no authority to alter Pyth pricing data, eliminating the possibility of manipulation.

Scallop SDK

Scallop SDK is a Typescript-based kit that features both a builder version for full developer control and a lightweight client version designed for simplified frontend integration. Scallop SDK allows developers to integrate the protocol’s lending and borrowing capabilities into a variety of different dApps across the Sui Blockchain:

• Typus: This protocol is a decentralized options and perps platform that integrates with Scallop SDK for its Options Vault and Perps TLP, utilizing sCoins to earn lending yield within the strategies.
• Cetus: This protocol is a DEX that allows users to earn yield on SCA tokens by providing liquidity in either the SCA-SUI or SCA-USDC liquidity pools. When users swap sCoins on the platform, Cetus leverages the Scallop SDK to redeem the underlying assets directly from Scallop in real time.
• Bucket: This protocol is a stablecoin platform that allows users to deposit SCA, sSCA, or other sCoins like sUSDC as collateral, which can be used to borrow USDB, a Bucket-issued stablecoin. During liquidation, the protocol uses Scallop SDK to instantly redeem the underlying assets, ensuring timely execution and accurate pricing.

Scallop also built multiple tools that support Sui developers. Sui Kit is a toolkit built on top of Mysten’s Sui SDK with an additional layer for improved usability. Sui Kit is written in TypeScript and earned Scallop a fifth place finish in the Sui Builder House Seoul Hackathon in June 2023. Scallop Package Kit is another tool built by the Scallop team that allows developers to manage the full lifecycle of Move packages on Sui.

Security

To further align with the goal of creating an institutional-grade platform, the Scallop codebase has been audited by multiple blockchain security firms, including Zellic, OtterSec, and MoveBit. The protocol is also in the process of completing formal verification with Asymptotic in order to ensure that the underlying mathematics are thoroughly validated. The Scallop Lend protocol has also been open-sourced for over two years, allowing anyone to independently audit the smart contracts that comprise the protocol.

Scallop also has a bug bounty program that incentivizes the community to identify any potential vulnerabilities in the system. Depending on the degree of severity of the bug as evaluated by the Scallop Project Contributors, users can earn up to $300,000 paid in SUI, USDC, and/or SCA.

Fees

In exchange for Scallop’s services, the protocol charges a fee on all transactions, which varies depending on the specific type of transaction.

• Borrowing Fees: Scallop distinguishes main assets from emerging and isolated assets in terms of the borrowing fee incurred. Main assets have a borrowing fee of 0.3%, while both emerging and isolated assets have a 1% fee.
• Borrowing Interest Fee: Interest fees paid by the borrower vary based on the specific pool that the loan was taken from. The protocol directs a portion of the fees to the treasury as income.
• Liquidation Fee: When a user on Scallop gets liquidated, 1% of the total liquidation amount is accumulated by the protocol as income.
• Flash Loan Fee: When a user takes out a flash loan, 0.1% of the total loan amount goes to the protocol as income.
• SUI Network Fee: Gas fees on SUI are deducted from a user’s wallet when a transaction is executed.
• Oracle Fee: A small fee denominated in SUI is charged for use of the X-Oracle service. Notably, oracle fees are routed to Pyth, who is the primary oracle provider for Scallop.

Tokenomics

The Scallop token (SCA) is the protocol’s native utility token, and is critical to driving platform participation and governance decisions. As of September 2025, the token trades at a $12.7 million market cap with a fully diluted valuation of $25.4 million. SCA trades on a plethora of different DEXs on Sui, as well as CEXs like Bybit, Gate, and Binance Alpha.

Token Distribution

SCA has a total supply of 250 million tokens, 67% of which are controlled by the Scallop team. The total supply is divided amongst the following parties:

• Liquidity Mining: 45% of the total supply (112.5 million SCA) is reserved for platform incentives. These tokens are released weekly over the course of five years, with 1.5% decrease in emissions every month.
• Investors: 15% of the total supply (37.5 million SCA) is allocated to private fundraising investors and strategic partnerships. These tokens are gradually unlocked over the course of one to three years.
• Team and Core Contributors: 15% of the total supply (37.5 million SCA) is allocated to Scallop team members and other contributors to the protocol. These tokens are subject to a one-year lock-up, followed by a linear unlock over three years.
• Ecosystem/Community/Marketing: 7.5% of the total supply (18.75 million SCA) is allocated to growth initiatives including marketing events, reports, and other forms of community engagement. These tokens are unlocked linearly over five years.
• Treasury: 7% of the total supply (17.5 million SCA) is allocated to the protocol’s treasury to ensure long-term sustainability. These tokens were fully unlocked upon TGE.
• Liquidity: 5% of the total supply (12.5 million SCA) is allocated to token liquidity in order to facilitate trading activities on centralized and decentralized exchanges.
• Dev and Ops: 4% of the total supply (10 million SCA) is allocated to development and operational initiatives to expand the protocol’s product offerings. These tokens are unlocked linearly over five years.
• Advisors: 1.5% of the total supply (3.75 million SCA) is allocated to protocol advisors who play a key role in the project’s decision-making. These tokens are subject to a one-year lock-up, followed by linear unlocks over three years.

Locking Mechanism

Scallop leverages the vote-escrow (ve) model created by Curve Finance, which has become widely used across DeFi applications in recent years. Inspired by mechanisms created by Pendle Finance, Scallop built its vote-escrow model from scratch using Sui’s Move programming language. Users can choose to lock SCA tokens in exchange for veSCA tokens, which vary based on the duration of the lock-in period.

As of October 2025, 51.16 million SCA have been locked, 20.46% of the total SCA supply and 40.14% of the circulating SCA supply respectively. These tokens have an average lock period of 3.68 years, highlighting tokenholder’s long-term alignment with the protocol. Locking tokens into the vote-escrow contract decreases the supply of SCA tokens available, providing token stability. Holders of veSCA have locked their tokens for an average period of 3.68 years, highlighting tokenholder long-term alignment with the protocol.

In exchange for locking SCA tokens, users unlock various perks on the platform:

• Boost Earnings: Holders of veSCA can boost the reward APR earned on certain borrowing pools, up to a multiple of four. The boost multiple is a function of both how much veSCA is held in a given borrower’s wallet and the user supply amount in a given borrow pool.
• Loyalty Program: Upon hitting specific total revenue targets, the team has promised to do sSCA buybacks and distribute those tokens to veSCA holders. For example, 200,000 sSCA tokens were distributed to veSCA holders after reaching the milestone of $6 million in total revenue. The reward is allocated to veSCA holders based on a pro rata basis.
• Referral Program: Scallop’s referral program allows users to generate a unique referral link and invite new users to use the platform. In exchange for bringing new users onto Scallop, referrers earn a share of the borrow fee that a user using their link generates. The share of the borrow fee that the referrer earns varies based on the amount of veSCA held.
• Borrow Fee Discounts: Referred borrowers also benefit from holding veSCA. Depending on the amount of veSCA held, tokenholders can reduce their borrow fee by up to 20%.
• Airdrops: Holders of veSCA benefit from airdrop distributions from ecosystem partners across the Sui ecosystem. For example, veSCA tokenholders were eligible to receive BLUE tokens as part of Bluefin’s airdrop program and were eligible to receive a proportional share of a 200 million BEEG token airdrop.
• Real-World Benefits: Beyond onchain rewards, veSCA holders can enjoy exclusive benefits such as anniversary gift boxes and RNS IDs.

Network Activity

Scallop Protocol went live on Sui mainnet in July 2023 and reached a peak TVL of $195 million in November 2024. As of September 2025, TVL on Scallop is $102.1 million, making it the fourth largest lending protocol on Sui.

As of September 2025, Scallop has generated $5.37 million in cumulative protocol revenue.

Roadmap

While no official roadmap has been published, the Scallop Project Contributor team has alluded to a number of different upcoming initiatives:

• Scallop Tools V2: Scallop plans to add to the functionality of their Scallop Tools module by integrating flash loans, Scallop Lend, and Scallop Swap. In doing so, users would be able to seamlessly change their collateral assets without repaying manually.
• Scallop APM: Scallop aims to develop an Anti Price Manipulation (APM) module to provide an additional risk defense layer within the lending protocol. Through monitoring short-term price movements of supported assets, the module is able to reduce the collateral weight of an affected asset to 0% when abnormal surges are detected. This mechanism prevents potential systemic risk from price manipulation, protects collateral pool stability, and minimizes bad debt exposure. Integrated with Scallop’s X-oracle, the module looks to provide rapid automated protection while allowing admin flexibility in legitimate market rallies.
• No-Liquidation Vault: Scallop plans to launch a vault designed to protect users from involuntary liquidations. By depositing sCoins into the vault, users can configure strategies that allow for automated stabilization when health factors fall near liquidation thresholds. The vault aims to strengthen user protection, improve retention on the platform, and enhance sCoin utility across the Sui DeFi ecosystem.
• Expansion of Emerging Assets: Scallop aims to add more tokens to the Emerging Asset Pools. Tokens in this pool can be used as collateral for borrowing, but have tighter risk parameters than Main Assets in order to ensure stability. As of September 2025, the tokens in the Emerging Asset category are HAEDAL, WAL, SCA, DEEP, BLUB and CETUS.
• Governance Rights for veSCA holders: In order to align incentives between the protocol and the community, Scallop plans to decentralize governance to give veSCA holders influence over key decisions.

Closing Summary

Scallop is a permissionless money market protocol, offering overcollateralized lending services for onchain assets. Launched in July 2023, Scallop has accumulated over $6 million in revenue and reached a peak TVL of $195 million in November 2024. The protocol aims to build up these metrics through expansion to multiple blockchains and the integration of additional Emerging Assets. Additionally, Scallop plans to further engage the community by adding utility to veSCA in the form of decentralized governance.

Scallop is built from the ground up with security in mind. Services like X-Oracle and bug bounty programs aim to provide trust in the protocol’s integrity and health over the long run. Scallop’s commitment to security is further exemplified by its aim of introducing Scallop APM to eliminate the risk of any price manipulation on the platform.

The protocol uses features like the separation of deposits and collateral for risk management purposes, while incentivizing borrowing pools to maintain capital efficiency. Leveraging the transparency and inherent composability of the Sui Blockchain, the protocol aims to create a comprehensive solution for the next era of financial products.