> For the complete documentation index, see [llms.txt](https://chi-protocol.gitbook.io/chi-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://chi-protocol.gitbook.io/chi-docs/chi/understanding-chi-and-use-cases.md).

# Understanding CHI & Use Cases

## Introduction to CHI

<figure><img src="/files/rfFBlEpfygIgGK09EBaX" alt="" width="240"><figcaption></figcaption></figure>

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:

<details>

<summary><strong>Staking CHI/ETH LP Tokens</strong>:</summary>

Users earn:

* stETH
* weETH
* CHI

</details>

<details>

<summary><strong>Boosting CHI in Exchange for veCHI</strong>:</summary>

Users earn:

* stETH
* CHI

</details>

{% 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&#x20;

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).

<figure><img src="/files/PA24o8nozAuH6zpMPW2i" alt=""><figcaption><p>CHI Token Utilities </p></figcaption></figure>

{% 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.

<figure><img src="/files/JVraMwyYUCzwRJqsVwMT" alt=""><figcaption><p>CHI/ETH LP Staking Rewards</p></figcaption></figure>

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.

<figure><img src="/files/CZc4VJhGSgZ3mXej0jbp" alt=""><figcaption><p>veCHI Rewards </p></figcaption></figure>

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**&#x20;

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.

<figure><img src="/files/ocp4uFvCxEq9qI93h8q0" alt=""><figcaption><p>CHI/ETH LP vs veCHI</p></figcaption></figure>

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)