Mints and Redemptions

Minting and Redeeming USC

Minting USC

Minting USC

Chi Protocol operates entirely on-chain with zero off-chain components. Anyone can mint USC by depositing ETH, LSTs, and LRTs into the protocol’s reserves, ensuring a transparent and decentralised process.

Unlike CDP stablecoins, Chi Protocol allows users to mint USC at a 1:1 ratio in dollar terms against ETH, LSTs, and LRTs. Once USC is minted, it is instantly received in the user’s wallet, ready to be used across the Chi Protocol ecosystem and the broader DeFi landscape.

Example: Bob deposits $10,000 worth of ETH into the protocol's reserves and, in exchange, receives $10,000 USC instantly in his wallet. This USC can then be used across the Chi Protocol ecosystem and within the broader DeFi landscape.

Redeeming USC

Redeeming USC

Unlike traditional centralised stablecoins, which allow redemptions only for approved users, Chi Protocol allows anyone to redeem their USC directly. When redeeming USC, users instantly receive ETH, LSTs and LRTs from the reserves, ensuring a seamless and accessible process for all participants.

Example: Bob redeems $10,000 USC and, in exchange, receives $10,000 worth of ETH instantly in his wallet. This straightforward process allows Bob to convert his USC back into ETH with zero slippage.

Chi Protocol charges a 0.03% fee on the notional amount during the minting and redeeming process. This fee is comparable to performing a swap on Uniswap V2; however, Chi Protocol offers the added advantage of zero slippage, enhancing the user experience and incentivising direct interaction with the protocol. For more information, please refer to the Fees section.

Parameters

The protocol parameters for minting and redeeming USC are governed by two key factors: price stability (maxMintBurnPriceDiff) and the solvency of reserves (maxMintBurnReserveTolerance).

• maxMintBurnPriceDiff: This parameter measures the deviation of USC from its $1 peg, with a set allowable range of $0.05. Minting and redeeming operations are only allowed when USC's price remains within $0.95 to $1.05.

• maxMintBurnReserveTolerance: This parameter measures the percentage deviation of the USC market cap from the value of the reserves, with a set tolerance of 0.05%. Minting and redeeming operations are only allowed when USC's collateral ratio remains within a 99.5% to 100.05% range. This ensures that minting and redemption are permitted only when the protocol's reserves are closely aligned with the USC market cap, maintaining a high level of solvency.

maxMintBurnPriceDiff and maxMintBurnReserveTolerance are parameters that can be adjusted by governance. This allows the protocol to adapt to changing market conditions and ensure continued stability and solvency as determined by the community or governing body.

Examples

Example 1

Assume the Collateral Ratio (CR) is 100%, and the price of USC is equal to $1.00. In this scenario, Bob can freely mint and redeem USC, as both the price stability and reserve solvency conditions are met, allowing seamless interaction with the protocol.

Example 2

Assume the Collateral Ratio (CR) is 100.2%, and the price of USC is $0.99. In this scenario, Bob can mint and redeem USC, as the CR is within the acceptable range and the price deviation is within the allowed $0.05 range from the $1 peg, meeting the protocol’s parameters for these operations.

Example 3

Assume the Collateral Ratio (CR) is 99.8%, and the price of USC is $1.01. In this scenario, Bob can mint or redeem USC, as the CR is within the acceptable range and the price deviation is within the allowed $0.05 range from the $1 peg, meeting the protocol’s parameters for these operations.

Example 4

Consider the case where the Collateral Ratio (CR) is 99.4% and the price of USC is $1.01. In this scenario, Bob cannot mint or redeem USC because the CR is below the acceptable range (99.5%), which means the protocol's solvency state does not meet the predefined parameters. However, once the market conditions improve and the CR returns within the acceptable range, Bob will be able to mint and redeem USC.

Example 5

Consider the case where the Collateral Ratio (CR) is 100% and the price of USC is $1.06. In this scenario, Bob cannot mint or redeem USC because the price of USC exceeds the allowable range ($0.95 to $1.05) defined by the protocol's parameters. However, once the price of USC returns within the acceptable range, Bob will be able to mint and redeem USC as usual.

Example 6

Consider the case where the Collateral Ratio (CR) is 99% and the price of USC is $0.94. In this scenario, Bob cannot mint or redeem USC because both the CR and the price of USC fall outside the predefined parameters set by the protocol (CR below 99.5% and USC price outside the $0.95 to $1.05 range). However, once the market conditions improve and both the CR and USC price return within the acceptable ranges, Bob will be able to mint and redeem USC.

Historically, the protocol has consistently maintained the peg at $1 and the Collateral Ratio (CR) at 100%, allowing for continuous mints and redemptions. This stability is evident and can be observed on the USC analytics page.