# Risks

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**Despite being called a "stablecoin," USC, stUSC, and wstUSC aren't "risk-free" options for crypto users.** Since USC is backed by liquid staking and restaking derivatives, the protocol remains exposed to fluctuations in the price of ETH. USC holds the highest level of seniority within the Chi Protocol tranches, with ETH's volatility risk spread across various stakeholders. Please refer to our extensive[ Collateral Risk Management](/chi-docs/concepts/collateral-risk-management.md) and [Risks](/chi-docs/concepts/risks.md) sections for more information.
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## Existing Fiat Backed Stablecoins and Synthetic Dollars

Centralised stablecoins like USDC or USDT offer stability and capital efficiency but carry significant risks:

<figure><img src="/files/IG870cmcA1o3wAdwqtbV" alt=""><figcaption><p>Centralised Stablecoins Risks</p></figcaption></figure>

Similarly, delta-neutral stablecoins, like USDe from Ethena, come with their own set of risks, including exchange failure, funding, and liquidation risks:

<figure><img src="/files/bgElIVnzNtBLbodMjJYK" alt=""><figcaption><p>Delta-Neutral Stablecoin Risks</p></figcaption></figure>

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In summary, being fiat-backed or delta-neutral does not guarantee stablecoin peg stability in all scenarios.
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## Risks of Chi Protocol

Chi Protocol develops USC with a strong emphasis on maintaining its peg and minimising counter-party risks through meticulously designed smart contracts that operate entirely on-chain, with zero off-chain components. However, as with any DeFi product, inherent risks are involved when interacting with Chi or holding its stablecoin.

When you hold a stablecoin, you are relying on the underlying technology and economic mechanisms designed to ensure that the reserves always match the number of stablecoins in circulation. While Chi Protocol's contributors prioritise security and continuously work to minimize risks, it is crucial for all stakeholders to be fully aware of the potential risks associated with the protocol.

#### Key Risks Associated with Chi Protocol:

<figure><img src="/files/qHa3NiQ8GCmgsYwq0tyy" alt=""><figcaption><p>Chi Protocol Risks</p></figcaption></figure>

* [Bad Debt Risk ](/chi-docs/concepts/risks/bad-debt-risk.md)
* [Collateral Risk ](/chi-docs/concepts/risks/collateral-risk.md)
* [Third-Party Risk](/chi-docs/concepts/risks/third-party-risk.md)
* [Smart Contract Risk ](/chi-docs/concepts/risks/smart-contract-risk.md)

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#### Community Feedback and Transparency

We welcome any feedback or suggestions to help make the protocol as transparent as possible. If you believe any risks haven't been adequately addressed, please reach out to the contributors on Discord. Our goal is to ensure that all stakeholders have a clear understanding of the risks involved and can engage with the protocol confidently and securely.
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