FAQs
Frequently Asked Questions: A Guide
Last updated
Frequently Asked Questions: A Guide
Last updated
Chi Protocol is a permissionless platform that issues USC, a decentralised and scalable stablecoin backed by Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs). Our goal is to create a reliable asset while sharing the rewards generated by the protocol with all users.
Chi Protocol offers users the ability to:
Mint USC in a decentralised, capital-efficient manner
Stake USC to receive stUSC or wstUSC, earning native stablecoin yields while maintaining liquidity
Utilise liquidity provision strategies with CHI and USC to earn rewards in stETH and weETH, generated from the protocol’s reserves and CHI incentives
Boost CHI in exchange for veCHI, gaining voting power, stETH rewards, and CHI incentives
For more details, please visit the "What is Chi Protocol?" page.
No, Chi Protocol is not a fork. Its mechanisms are designed entirely by the core contributors, drawing inspiration from traditional finance while prioritising decentralisation. For more information, please refer to our "Technical Resources" to explore the foundational mechanisms of the protocol in detail.
Traditional stablecoins face challenges such as:
Centralisation and regulatory risks
Capital inefficiencies in the minting process
Low rewards for stakeholders
Chi Protocol addresses these limitations by using permissionless Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs) as reserves, implementing robust stability mechanisms, and creating sustainable incentives. This makes Chi Protocol the first to solve the stablecoin trilemma, offering a stablecoin that is reliable, scalable, and rewarding.
For more in-depth information, please visit the "Importance of USC" page.
Delta Neutral Stables: Delta-neutral stablecoins, designed to eliminate price exposure, often result in low yields due to short positions on derivative exchanges. Chi Protocol distributes price risk across stakeholders, eliminating hedging costs while benefiting from ETH price increases and maintaining liquidity buffers to protect against market downturns.
CDPs: Collateralised Debt Position (CDP) stablecoins have struggled with growth due to capital inefficiencies and limited user incentives. Traditional CDPs require high collateral ratios, limiting scalability and user rewards. Chi Protocol allows users to mint USC at a 1:1 ratio with ETH, LSTs, or LRTs, offering high yields, zero slippage, and capital efficiency.
For further details, please visit the "Importance of USC" and "Summary" pages.
No, minting USC is not equivalent to borrowing. When users mint USC, they effectively sell their ETH, LSTs, or LRTs to Chi Protocol in exchange for USD-denominated stability and unique rewards. After minting, users no longer have exposure to ETH price movements.
For further details, please visit the "Mints and Redemptions" page.
Traditional fiat stablecoins rely on centralised infrastructure and offer low rewards. Their collateral is held in regulated bank accounts, exposing them to confiscation risks and the fragility of the banking system. Furthermore, issuers retain yields from the collateral, and minting is restricted to whitelisted users. Chi Protocol, by contrast, offers decentralised minting, access to stable yields, and no reliance on centralised intermediaries or centralised counter-party risks.
For more in-depth information, please visit the "Importance of USC" page.
Most DeFi governance tokens hold little real value. In contrast, CHI is the first governance token for a stablecoin protocol that is directly tied to real value. As Chi Protocol’s reserves grow, rewards for boosting and providing liquidity in CHI increase, making its value rise in tandem. Importantly, CHI rewards are denominated in ETH, the second-largest cryptocurrency in the world.
For more on this topic, please visit the "Understanding CHI & Use Cases" page.
Staking USC offers holders access to rewards generated by Chi Protocol’s Dual Stability Mechanism (DSM), with two staking options:
stUSC (Rebase Version): An ERC20 token that automatically accrues rewards with each block, increasing the user’s balance over time based on market APR.
wstUSC (Non-Rebase Version): A wrapped version of stUSC that does not change in balance but increases in value over time, providing predictable value accrual without modifying token balances.
Both options offer flexibility based on the user’s preference for rebase or non-rebase assets.
For more details, please refer to the "Staking USC" section.
We define decentralisation as:
No reliance on censorable collateral—Chi Protocol is fully backed by non-custodial LSTs and LRTs
No blacklist or freezing functions—Chi Protocol cannot freeze users’ assets
All operations are transparent and on-chain, relying solely on Ethereum-based smart contracts without any off-chain components.
Chi Protocol’s reserves are securely held in a smart contract called ReserveHolder V2. These reserves are fully transparent, allowing users to view the collateral backing USC at any time.
For more details, please refer to the "Smart Contract Addresses" page.
Chi Protocol and Circle both offer USD-denominated stable instruments, but they differ in key ways:
Centralisation Levels: Chi Protocol is fully decentralised, operating entirely on-chain with no off-chain components. It has censorship-resistant reserves and doesn't rely on centralised infrastructures. Circle, on the other hand, is a centralised organisation that stores collateral in highly regulated banking infrastructure, which may be subject to confiscation or exposed to risks like bank failures, as seen during the Silicon Valley Bank crisis in March 2023.
Counterparty Risks: Chi Protocol minimises counterparty risk by using high-quality Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs), sourced from major DeFi protocols like Lido and Etherfi. The success of Chi Protocol is tied to the success of Ethereum and the broader LST and LRT ecosystem, as reserves are held in these assets via smart contracts. Circle, however, is heavily exposed to counterparty risk due to its reserves being held in U.S. Dollar cash reserves and short-term U.S. Government Treasuries within regulated banking structures. Circle’s success depends on the stability of the U.S. economy and the traditional banking system.
Saving Rewards: Chi Protocol distributes staking rewards from LST and LRT reserves, along with arbitrage revenue from its dual stability mechanisms, to stakeholders such as USC stakers, liquidity providers, and veCHI holders. In contrast, Circle internalises the yield generated from its reserves, only sharing it with specific partners in some cases, but not with USDC holders.
For more in-depth information, please visit the "Importance of USC" page.
Chi Protocol is a decentralised, reserve-backed stablecoin on Ethereum, allowing users to mint USC at a 100% collateral ratio. It uses censorship-resistant collateral and operates entirely on-chain, with no off-chain components. When users mint USC, they aren’t borrowing against their collateral; rather, they deposit ETH, LSTs, or LRTs into the protocol and receive USC at a 1:1 ratio, functioning like a zero-slippage swap.
In contrast, Maker’s DAI requires users to deposit excess collateral (e.g., ETH) and then borrow DAI with a collateralisation ratio of about 150%. While the CDP model enables leverage, it is less capital-efficient compared to Chi Protocol, which we believe is a reason centralised stablecoins maintain their dominance.
For more in-depth information, please visit the "Importance of USC" page.
Chi Protocol is a decentralised stablecoin issuer using LSTs and LRTs as reserve assets. Users can mint USC at a 1:1 ratio against ETH, LSTs, or LRTs and use USC across Chi Protocol’s ecosystem and the broader DeFi landscape. The protocol manages volatility risks by distributing risk across various stakeholders, including the protocol itself and liquidity providers. Users who take on more risk (e.g., price exposure to the collateral) are compensated with staking rewards in ETH derived from the protocol’s reserves. Chi Protocol is not exposed to risks like centralised exchange failures or liquidation risks.
Ethena, by contrast, is a centralised organisation issuing USDe. When users mint USDe against collateral, the platform's algorithms open short positions to hedge the value of the minted USDe. This approach exposes Ethena to risks such as exchange failures (similar to FTX) and funding risks. If reserve yields are lower than the costs of maintaining short positions, Ethena’s Reserve Fund may face insolvency risks. Furthermore, because Ethena is delta-neutral, it doesn’t benefit as much as Chi Protocol from the potential price appreciation of the underlying collateral.
For more in-depth information, please visit the "Importance of USC" page.
In the Chi Protocol ecosystem, users can either stake or boost their tokens, and each option provides different types of rewards.
Staking Type of Rewards:
stUSC, wstUSC: Native USC rewards, derived from the protocol’s revenue generated through the Dual Stability Mechanism (DSM). These rewards are scalable and contingent on volatility. They increase with higher TVL (Total Value Locked), ETH volatility, and fluctuations in USC demand.
CHI/ETH and USC/ETH: stETH and weETH rewards generated by the protocol’s USC reserves. As the protocol’s reserves grow, the yield for liquidity provider (LP) stakers increases. In addition, CHI/ETH and USC/ETH LP stakers earn extra CHI incentives from token emissions.
Boosting Type of Rewards:
Boosting wstUSC: Along with USC rewards, wstUSC boosters earn additional CHI incentives based on the length of the boost period. The longer the boost time, the higher the booster on CHI rewards.
Boosting staked CHI/ETH and USC/ETH LP tokens: Boosters of these LP tokens receive additional CHI incentives, alongside their stETH, weETH, and CHI rewards. The booster increases with longer boost times.
Boosting CHI: Boosting CHI grants veCHI (vote escrowed CHI), entitling holders to voting power and a portion of stETH rewards with extra CHI incentives. These stETH rewards scale with the protocol’s TVL.
Note: The minimum boost period for wstUSC, CHI/ETH, and USC/ETH is 1 week, while the maximum is 1 year.
Note: The minimum boost period for veCHI is 4 weeks, while the maximum is 4 years.
For further details, please visit the following pages and sections: "Sustainable Rewards, Token Boost, Staking USC, Providing Liquidity in USC, Providing Liquidity in CHI, veCHI & Governnace".
When you stake USC, you receive stUSC, which automatically accrues rebasing rewards. With each Ethereum block, stUSC holders earn USC rewards, causing their stUSC balance to increase. For wstUSC holders, the rewards work similarly, but instead of the balance increasing, the value of wstUSC rises over time.
For more details, please refer to the "Staking USC" and "Rewards Generation & Distribution" sections.
For stUSC and wstUSC, rewards come from arbitrage revenue generated by the Dual Stability Mechanism (DSM). When the collateral ratio deviates from 100% or USC demand fluctuates, the protocol performs arbitrage operations to restore equilibrium, generating revenue in ETH or USC in the process.
For veCHI holders and liquidity providers, yields come from LST and LRT rewards generated by the protocol’s reserves. As users mint USC, the protocol builds up reserves in stETH and weETH, increasing rewards for veCHI holders and LP stakers. As the protocol's TVL grows, so do the incentives to boost CHI and provide liquidity.
For further details, please refer to the "Sustainable Reward Sources" and "Rewards Generation & Distribution" sections.
No, the rewards for staking USC (stUSC and wstUSC) are the same. The difference lies in their properties: stUSC uses a rebasing mechanism, while wstUSC is non-rebasing but increases in value over time.
For more details, please refer to the "Staking USC" and "Rewards Generation & Distribution" section and page.
Boosting CHI grants you veCHI based on the boost duration. In addition to voting power in the DAO, veCHI holders receive a portion of the stETH and weETH rewards generated by the protocol’s reserves. Currently, veCHI holders receive 15% of the yields from LSTs and LRTs. Additionally, veCHI holders receive CHI incentives, which are automatically locked for the same duration as the boost period. Rewards in weETH are converted to stETH for simplicity and can be claimed manually.
For more details, please visit the "Sustainable Reward Sources" and "veCHI & Governance" section and page.
Liquidity providers in USC/ETH and CHI/ETH Uniswap v2 pools can stake their LP tokens in the Chi Protocol to earn a share of stETH and weETH yields from the protocol’s reserves. As of now, CHI/ETH LP stakers receive 80% of the stETH and weETH rewards, while USC/ETH LP stakers receive 5% of the rewards generated by Chi Protocol’s reserves.
For details, please visit the "Sustainable Reward Sources", "Providing Liquidity in USC", "Providing Liquidity in CHI", sections and pages.
The yield to liquidity providers comes from stETH and weETH, which are generated by Chi Protocol’s reserves. As the protocol’s reserves expand due to the growth of USC’s market cap, the incentives to provide liquidity in CHI and USC increase, driving real value growth within the protocol.
For further details, please refer to the "Sustainable Reward Sources" section.
To boost your positions, go to the liquidity section, select the token you want to boost, and choose a boost duration. The longer the boost time, the higher the rewards multiplier.
For more details, please visit the "Token Boost" page.
There is a dedicated section in the documentation where all APR formulas used in the Chi Protocol’s frontend interface are explained.
For more details, please visit the "APR Formulas" page.
To mint USC, users can utilise the following types of currencies:
Reserve Currencies:
ETH, WETH, stETH, and weETH – these currencies are automatically deposited into the protocol's reserves.
Other Stablecoins:
USDC, USDT, DAI, USDe, and FRAX – these stablecoins are automatically converted into reserve currencies using 1Inch.
For further details, please visit the "Mints and Redemptions" page.
Users can mint USC with ETH, WETH, USDC, USDT and DAI from Layer 2 (L2s) blockchains like Base, Arbitrum, Optimism, Polygon, and Blast. During the transaction, the Across Bridge is integrated to transfer the user’s collateral from the L2 chain to Ethereum Mainnet, where the USC is minted. Once completed, the user receives their USC on Ethereum Mainnet. For further details, please refer to the "Mint Page" on our official dAPP.
Mint limits only apply to stETH and weETH, and these are determined by the available liquidity on Curve and Uniswap to convert stETH and weETH back into ETH. For ETH and WETH, there are no restrictions on the minimum or maximum reserves required to mint USC. Users have full flexibility in deciding how much they wish to mint.
For further details, please visit the "Mints and Redemptions" page.
No, there are no minimum or maximum limits on how much USC can be staked. Users have full flexibility in how much USC they want to stake.
For more details, please refer to the "Staking USC" page.
In addition to the standard Ethereum gas fees, users pay a 0.03% fee on the notional amount when minting or redeeming USC. This is similar to performing a swap on Uniswap v2, but with the added benefit of zero slippage when interacting with Chi Protocol.
For more details, please visit the "Fees" page.
Rewards are distributed according to the token being staked or boosted:
Staking Contracts: For stUSC, wstUSC, CHI/ETH LP, and USC/ETH LP staking, rewards (USC, stETH, and weETH) are distributed continuously with each Ethereum block.
Boosting Contracts: For boosted stUSC, wstUSC, CHI/ETH LP, and USC/ETH LP, extra CHI rewards are distributed daily, while underlying staking rewards are received each block. For CHI boosting, all rewards (CHI and stETH) are distributed weekly, every Sunday at 12 am BST. For more details, please visit the "Staking USC, Liquidity Provision in USC, Liquidity Provision in CHI and veCHI & Governance" sections and pages.
Yes, the protocol has undergone two comprehensive audits conducted by leading companies, Nethermind and ABDK.
You can find the audit reports here:
Chi Protocol maintains strong security measures, including:
No unnecessary complexities in the protocol’s design
24/7 monitoring by an active global team
Internalised arbitrage and liquidation mechanisms to ensure stability
Direct communication channels with all partner protocols to enable rapid responses and coordinated security efforts in case of any potential issues.
Chi Protocol maintains the USC price at $1 with a 1:1 collateral ratio through the Dual Stability Mechanism (DSM). The DSM is embedded in the Arbitrage Contract, an open-source smart contract that executes automated arbitrage whenever the USC price deviates from its $1 peg or the collateral ratio strays from 100%.
The arbitrage contract evaluates the market price of USC on Uniswap (above, below, or at $1) along with the state of the protocol’s reserves (excess, equilibrium, or deficit). When an arbitrage opportunity arises, it is executed internally by the protocol, generating revenue while restoring USC’s $1 peg and maintaining the 100% collateral ratio.
For more details, visit the " Dual Stability Mechanism (DSM)" page.
The current yield from the protocol’s stETH and weETH reserves is distributed as follows:
80% to CHI/ETH LP stakers
15% to veCHI holders
5% to USC/ETH LP stakers
This yield distribution is flexible and may be adjusted to promote the protocol’s long-term sustainability.
For more details, visit the "Sustainable Rewards Sources " dedicated page.
To manage the volatility risk of ETH, the protocol employs several risk mitigation strategies. The key approach is a tranche model that distributes risk across various stakeholders, ranging from the most senior (lowest risk) to the most junior (highest risk). Those who take on higher risk—those most exposed to ETH volatility—are compensated with the highest protocol rewards.
For more information, visit the " Collateral Risk Management " page and "Risks" section in the documentation.
As any other protocol in DeFi, interacting with Chi Protocol may involve some degree of risk, including economic, smart contract, and third-party risks. Despite being designed as a stable system, we are transparent about these risks and are continuously working to mitigate them.
For more details, visit our detailed "Risks" section.
