Understanding CHI & Use Cases
The governance token with LST/LRT Yields
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), 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:
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
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).
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.
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.
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.
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.
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 More on veCHI More on Tokenomics
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