Herein we propose a new "three-step" model of synthesizing graphite encapsulated nickel nanoparticles (Ni-GEM), including the pyrolysis reaction of organic compounds which the conventional two-step model ignores. According to the results of XRD, Raman, and TEM, we found that the Ni-GEM synthesized by using both PF resin and benzene vapor as the carbon sources has two favorable characteristics: thicker shells (similar to 5-10 nm) and smaller particle sizes (similar to 30 nm), which are much better than those using only PF resin or PF resin mixed with cyclohexane vapor (thinner shell less than 5 nm and larger particle sizes similar to 50 nm). Benzene decomposes into large aromatic molecules and tiny graphitic flakes at 1200-3500K, while cyclohexane prefers to decompose and form small hydrocarbon molecules at 1000K. As a result, the two compounds go through two different reaction paths. Benzene will decompose and directly attach onto the surface of Ni nanoparticles, forming smaller sized but thicker shell structured Ni-GEM, while cyclohexane will lead to the formation of amorphous carbon coating on the Ni-GEM. By including the above two distinct hydrocarbon pyrolysis reactions, this study modifies the conventional model and successfully explains the formation processes of Ni-GEM with very different morphologies. Furthermore, the new model may help in controlling the morphologies of other GEM nanoparticles with a number of core-metals.