Liquidity Provision in CHI
Providing CHI Liquidity
Last updated
Providing CHI Liquidity
Last updated
Unlike traditional liquidity pools where incentives are typically paid out in governance tokens, Chi Protocol allows users to stake their CHI/ETH LP tokens and earn native staked ETH rewards directly from the protocol’s reserves, in addition to trading fees generated from trading volumes. This dual reward structure enhances the overall yields for liquidity providers, offering both staked ETH rewards and trading fee income.
As of today's date, 80% of the LST and LRT rewards generated by the protocol's reserves are allocated to CHI/ETH LP Stakers.
The current allocation of rewards directed to CHI/ETH LPs is 80% of the total yield generated by the stablecoin reserves. This substantial allocation incentivises liquidity providers by offering them the largest share of the protocol's yield, making it a highly attractive option for those contributing to the liquidity pool.
Rewards in stETH and weETH are distributed every second, and users must manually claim them to receive their earnings. This ensures that stakers can collect their rewards at their convenience.
Suppose the protocol's reserves are worth $5 million, and the average annual yield of the protocol's LSTs and LRTs is 3%. This means the protocol is currently generating $150,000 in yearly rewards from the USC reserves. CHI/ETH LP stakers are entitled to:
$120,000 to CHI/ETH LP Stakers (80% of $150,000)
By providing liquidity in the CHI/ETH pool, users benefit significantly from the growth in the protocol's reserves. This strategy not only benefits from the increase in Total Value Locked (TVL) but also offers a substantial and predictable stream of rewards, enhancing the stability and profitability of users' positions within the protocol.
Note that USC/ETH LP stakers are also entitled to receive additional CHI rewards. This adds another layer of incentives, boosting the overall yields for liquidity providers within the protocol.
Assuming that within a given timestamp, 1 stETH, 1 weETH, and 1 CHI are distributed, CHI/ETH LP stakers would be entitled to a portion of these rewards based on their stake in the liquidity pool. Specifically:
Note that the current rewards are measured and distributed every second.
