Introduction to Chi Protocol

What is USC? What is CHI?

USC

USC is a fully collateralised, capital-efficient stablecoin with intrinsic yield, pegged to the US dollar. You can earn more USC, gain voting power through veCHI, and receive stETH and additional stCHI rewards by simply staking USC.

Anyone providing LSTs/ETH as deposits can mint USC at a 100% collateral ratio. This means that for every $1 of collateral deposited, users receive 1 USC, enabling them to store wealth in a trustless, capital-efficient manner with access to various yield opportunities.

When USC is staked in the USC staking contract (stUSC), users will see their claimable USC balance increasing as they earn stablecoin yield. These rewards come from the dual stability mechanism and the specific scenario where USC trades below 1 USD, and the protocol has excess LSTs/ETH reserves. In such cases, the algorithm uses all or part of the excess ETH reserves to buy back USC from the Uniswap Pool, redirecting arbitrage profits to the function caller in USC, and distributing the remaining difference (uscAmountToFreeze = uscAmountReceived - rewardAmount) to USC stakers. This strategy makes productive use of USC instead of burning stablecoins, which would result in an economic loss for the protocol. Furthermore, stCHI incentives allocated to stUSC enable additional earnings from ETH staking yields and CHI rewards.

CHI

Beyond minting and staking USC, users can buy CHI to benefit from the stablecoin’s increasing demand, which includes ETH staking rewards and CHI buybacks. Through staking CHI, users earn ETH staking yields from the protocol’s LSTs that back USC. This approach eliminates the need to redirect high CHI emissions or charge service fees to have revenue sources for CHI. Furthermore, when the Chi Protocol has excess ETH/LSTs and USC trades above 1 USD, the algorithm mints new USC to buy back CHI from the Uniswap Pool, transfers the arbitrage profits to the function caller in CHI, and burns the remaining CHI (chiAmountToBurn = chiAmountReceived - rewardAmount). This mechanism makes CHI tokens more scarce and acts as a revenue distribution mechanism independent of whether you are staking it or just simply holding it in your wallet.

Besides staking CHI, users can lock it for governance participation, receiving veCHI based on the duration of their time lock. Locking CHI grants users at least the same ETH staking yield as stCHI, along with additional veCHI incentives that boost their ETH staking rewards. The longer the time lock, the higher the amount of veCHI received, the more veCHI rewards users will earn on their locked positions, and the greater the boost to their ETH staking yield.

*Note: The amount of USC minted or repurchased by the protocol depends on the delta computation, which measures the responsive change in USC supply when its price deviates from the target 1 USD peg. This means that if the delta exceeds the excess reserves, a stability mechanism switch occurs; this is why it is referred to as a dual stability mechanism