# Understanding CHI & Use Cases ## Introduction to CHI
CHI is the ERC20 governance token of the Chi Protocol. While CHI plays a crucial role in the[ Dual Stability Mechanism (DSM),](/chi-docs/concepts/dual-stability-mechanism-dsm.md) its primary purpose is to involve as many users as possible in governance and to distribute the LST/LRT revenues generated by the yield from the USC reserves. Users can earn rewards by participating in the protocol in two main ways:
Staking CHI/ETH LP Tokens: Users earn: * stETH * weETH * CHI
Boosting CHI in Exchange for veCHI: Users earn: * stETH * CHI
{% hint style="success" %} As of today's date, the LST and LRT rewards generated by the protocol's reserves are allocated to CHI as follows: * **80%** to CHI/ETH LP Stakers * **15%** to veCHI Holders {% endhint %} These reward mechanisms incentivise user participation in both liquidity provision and governance, ensuring that the benefits of the protocol's success are shared among its contributors. ## The Use Cases of CHI CHI has three main uses: providing liquidity, boosting, and governance. Engaging in these activities requires you to either stake CHI/ETH LP tokens or single-side lock CHI for voting to acquire veCHI (Vote Escrowed CHI).

CHI Token Utilities

{% tabs %} {% tab title="Providing Liquidity " %} By staking CHI/ETH LP tokens from Uniswap v2, users earn a percentage of the stETH and weETH rewards generated by the protocol's reserves. This provides an additional incentive for liquidity providers, allowing them to benefit directly from the protocol's yield-generating activities.

CHI/ETH LP Staking Rewards

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. {% hint style="info" %} #### Example 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. {% endhint %} {% endtab %} {% tab title="Boosting CHI " %} By locking CHI, users receive veCHI, which allows them to participate in governance and earn a percentage of the stETH and weETH rewards generated by the protocol's reserves. This mechanism incentivises active participation in the protocol while rewarding users with a share of the yield generated by the USC reserves.

veCHI Rewards

The current allocation of rewards directed to veCHI holders is 15% of the total yield generated by the stablecoin reserves. {% hint style="info" %} #### Example 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. veCHI holders are entitled to: * **$22,500** to veCHI Holders (15% of $150,000) By locking CHI and obtaining veCHI, users benefit from the growth in the protocol's reserves. This strategy not only allows users to participate in governance but also provides a steady stream of rewards, offering a sense of predictability and stability for their positions within the protocol. {% endhint %} {% endtab %} {% endtabs %} ## **CHI Matrix** The image below the benefits of staking CHI/ETH LP tokens versus boosting CHI to acquire veCHI within the Chi Protocol. * **ETH Staking Yield**: Both CHI/ETH LP stakers and veCHI holders receive ETH staking yield. * **Voting Power**: Only veCHI holders have voting power; CHI/ETH LP stakers do not. * **Boosted ETH Staking Yield**: veCHI holders receive a boosted ETH staking yield, while CHI/ETH LP stakers do not. * **CHI Incentives**: Both CHI/ETH LP stakers and veCHI holders receive CHI incentives.

CHI/ETH LP vs veCHI

This comparison highlights that while both options offer rewards, veCHI holders gain additional benefits such as voting power and boosted ETH staking yield. [More on Liquidity Provision in CHI](/chi-docs/chi/liquidity-provision-in-chi.md)\ [More on veCHI ](/chi-docs/chi/vechi-and-governance.md)\ [More on Tokenomics ](/chi-docs/chi/tokenomics.md) --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://chi-protocol.gitbook.io/chi-docs/chi/understanding-chi-and-use-cases.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.