Sustainable Reward Sources
Sustainable, Decentralised and Transparent Sources of Rewards
Last updated
Sustainable, Decentralised and Transparent Sources of Rewards
Last updated
Chi Protocol is a revenue-generating platform with a transparent reward distribution mechanism that benefits all stakeholders. The rewards generated within Chi Protocol come from two primary sources:
This dual-source revenue model ensures that all participants in the Chi Protocol benefit from the system's growth and stability.
As of today's date, the LST and LRT rewards generated by the protocol's reserves are allocated as follows:
80% to CHI/ETH LP Stakers
15% to veCHI Holders
5% to USC/ETH LP Stakers
These allocations ensure that the rewards are distributed among the key stakeholders in proportion to their contributions to the protocol's stability and liquidity.
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 that the protocol is currently generating $150,000 in yearly rewards from the USC reserves, which are distributed as follows:
$120,000 to CHI/ETH LPs (80%)
$22,500 to veCHI Holders (15%)
$7,500 to USC/ETH LP Stakers (5%)
By providing liquidity in CHI/ETH, USC/ETH, and locking CHI, users benefit from the growth in the protocol's reserves. This strategy not only gains from the increase in Total Value Locked (TVL) but also provides a sense of predictability and stability for the users' positions within the protocol.
Staking ETH and holding Liquid Staking Tokens (LSTs) enables the generation of rewards through the following mechanisms:
These components combine to provide a comprehensive reward structure for ETH stakers and LST holders, balancing predictability with the potential for higher returns based on network activity.
Throughout mid-2023, APR remained relatively stable, with occasional peaks reflecting high network activity. By late 2023 to mid-2024, APR demonstrated a steady trend towards 3-4%, showcasing a mature PoS environment with consistent rewards for stakers.
Restaking has gained substantial attention since late 2023. It involves using staked ETH to secure additional protocols, thereby earning extra rewards. This process allows stakers to leverage their staked ETH not only to support the Ethereum network but also to secure other protocols, such as EigenLayer, and earn protocol-specific rewards or points in return.
This approach enhances the utility of staked ETH, enabling stakers to maximise their returns by participating in multiple layers of the ecosystem, further driving the adoption and evolution of decentralised finance.
Restaking enhances Ethereum’s security features by extending them to a wide range of network applications, including decentralised applications (dApps), oracles, and layer-2 sidechains, collectively known as Actively Validated Services (AVSs). EigenLayer has played a pivotal role in implementing this mechanism, significantly transforming Ethereum’s crypto-economic security landscape. By enabling staked ETH to be reused for securing AVSs, restaking not only strengthens the security of these services but also maximises the utility of staked assets, making Ethereum more robust and versatile.
When USC trades below 1 USD and there is a mismatch between the protocol's reserves and the outstanding stablecoins in circulation, an arbitrage opportunity arises, allowing the protocol to earn a real source of revenue denominated in USC. This arbitrage revenue in USC is generated in the following scenarios:
Once the arbitrage is executed, the rewards are preserved within the arbitrage contract. The protocol retains the flexibility to allocate these rewards in various ways, including:
These options provide the protocol with strategic tools to enhance its ecosystem, reward stakeholders, and maintain a healthy, sustainable environment for growth.
In the initial phases of the protocol, the primary focus is on growing Total Value Locked (TVL), leading to high incentives for stUSC holders. This strategy aims to attract more users to stake USC, thereby increasing the protocol's liquidity and overall market presence. By offering substantial rewards to stUSC holders during these early stages, the protocol encourages participation and helps establish a strong foundation for future growth and stability.
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