# Reserve Fund

The Chi Protocol's reserve fund acts as a crucial safety margin against potential bad debts, stepping in when the CHI/ETH liquidity is insufficient to cover the protocol's obligations. This reserve fund provides an additional layer of protection, ensuring that the protocol can maintain its stability and solvency even in challenging market conditions. By serving as a backup, the reserve fund helps safeguard the protocol and its users from potential financial shortfalls.

{% hint style="info" %}
**The reserve fund is not where the USC reserves are held; rather, it serves as an additional buffer for the protocol’s primary reserves, designed to activate during unfavorable market conditions.** The protocol’s main reserves are securely stored in a decentralised manner within the `ReserveHolder`, a smart contract on the Ethereum network.
{% endhint %}

<figure><img src="/files/psws3Efu45h2S88gqA2A" alt="" width="563"><figcaption><p>Reserve Fund Multisig</p></figcaption></figure>

## Composition

The reserve fund is currently composed of the following tokens:

<figure><img src="/files/sruHnx2bJHJqh1QBKClr" alt=""><figcaption></figcaption></figure>

## Security of Reserves Fund

The reserve fund is controlled by a 4-of-8 multisig wallet, with the keys held by contributors who are members of Chi DAO. This setup ensures decentralised governance and security, requiring a majority consensus among key holders within the DAO for any transactions involving the reserve fund. This multisig structure enhances the protocol's safety and aligns decision-making with the interests of the broader community.

{% hint style="info" %}
**Multisig Address (eth)**:[ 0xcdB8d92FA641106fdAEe3CCC6B53a029eDb9c458](https://etherscan.io/address/0xcdB8d92FA641106fdAEe3CCC6B53a029eDb9c458)
{% endhint %}

## Capitalisation of the Reserve Fund&#x20;

The reserve fund is currently funded by three primary sources:

<details>

<summary><strong>1) Arbitrage Revenue Internalised by the Protocol:</strong></summary>

Revenue generated from arbitrage opportunities within the protocol, denominated in USC, CHI, and ETH. This helps bolster the reserves and maintain the stability of the protocol.

</details>

<details>

<summary><strong>2) Mint and Redeem Fees:</strong></summary>

Fees collected from the minting and redeeming of USC. These fees contribute directly to the reserve fund, ensuring that the protocol remains well-capitalised.

</details>

<details>

<summary><strong>3) stETH Rewards Generated by Treasury's Allocation in Locked CHI:</strong></summary>

Rewards earned from stETH, which are generated through the treasury's allocation in locked CHI. These rewards provide a steady income stream to support the reserve fund.

</details>

These funding sources collectively ensure that the reserve fund remains robust, capable of supporting the protocol's operations and maintaining the 1:1 collateralisation of USC.

[More on Sustainable Reward Sources ](/chi-docs/concepts/sustainable-reward-sources.md)\
[More on Fees](/chi-docs/concepts/fees.md)


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