Frequently Asked Questions
1. What is Chi Protocol?
Chi Protocol is a scalable and decentralised protocol dedicated to bringing stability to the cryptocurrency economy, allowing users to mint USC, a stablecoin with embedded yield using LSTs as reserve assets.
2. What is the motivation behind Chi Protocol?
Chi Protocol aims to scale DeFi by providing a secure, capital efficient, and fully decentralised with intrinsic yield stablecoin that is not under any government's authority while benefiting CHI and USC holders of all sizes.
3. What are USC and CHI?
USC is a 100% collateralised stablecoin pegged to the US dollar, using LSTs as reserve assets to maintain safety and decentralisation. USC can be staked to receive multiple forms of yield, including more USC, ETH and CHI.
CHI is the native token of the Chi Protocol which earns the interest of the LSTs in the reserves. Chi Protocol is managed by people worldwide who lock CHI.
4. How is USC stability achieved?
USC stability is ensured by a Dual Stability Mechanism, designed to create arbitrage opportunities that help maintain its peg in de-pegging scenarios. These factors work together to ensure that the value of USC remains close to its 1 USD peg, while the value of the stablecoin in circulation is fully backed by LSTs.
5. What are the key benefits of using Chi Protocol?
Staking USC yields high returns paid in USC, stCHI, and stETH
CHI stakers receive yields from LSTs, potentially offering an APR higher than that of ETH
6. How can I earn money using Chi Protocol?
There are four different ways to generate revenue using Chi Protocol:
Stake CHI to earn LST yield
Stake USC to earn more USC, stCHI and stETH
Lock CHI to earn LST yield, Chi Protocol’s revenue and CHI incentives
Stake USC/ETH and CHI/ETH LPs to earn stCHI and stETH
7. stETH the only reserve asset accepted by Chi Protocol?
Yes, stETH is the only reserve token accepted by Chi Protocol at genesis. Governance may propose additional tokens to diversify across LSTs.
8. How can I mint USC with Chi Protocol?
USC can be minted at any time from the protocol using stETH or ETH, maintained at a 100% collateral ratio. For every USD equivalent of stETH/ETH deposited, the protocol issues 1 USC.
9. How can I receive ETH back with USC?
Users can redeem USC for ETH directly from the protocol’s reserves; each USC redeemed is exchanged for ETH equivalent to $1.
10. What are USC Rewards?
USC rewards are generated when the arbitrage contract purchases USC—if the price drops below its peg and there are excess reserves. The acquired USC is then allocated to USC stakers.
11. How is Chi different from Ethena?
Chi Protocol operates fully in DeFi in contrast to Ethena which uses CEXS for perp liquidity CHI, our governance token, earns the stETH yield of the stablecoin reserves vs ENA does not earn real yields
USC is minted and redeemed globally by any user vs USDe is minted and redeemed by whitelisted users letting the average user's assets fully rely on liquidity
A strict stability mechanism is implemented when the price of USC does not trade at $1 and/or the collateral ratio is not 100% vs Ethena entirely relies on the funding payment being smaller than the stETH yield with no stability mechanism in place (i.e. if USDe depegs and the perp market goes against their insurance fund, there is no power source to bring the price back to $1 and ensure the full backing in USD value. This is different for Chi Protocol, as we carefully thought of tail risks and designed our mechanism to effectively ensure stability and solvency during bear markets)
The insurance fund of Chi Protocol is built out of the stETH yield of the stablecoin reserves and currently, the protocol's treasury owns the largest portion of the total locked CHI meaning that if the protocol faces exponential growth, the insurance fund will grow in proportion to the stablecoin market cap vs Ethena which relies on take rates from positive funding, i.e. if Ethena Labs has not had a chance to capitalise the insurance fund as a result of negative or small positive funding, the growth of USDe and the occurrence of a black swan event pose solvency risk to their stablecoin.
12. What are the added benefits of Chi vs CDPs?
Hard peg stability mechanism: Most CDPs have a floating peg and rarely trade at precisely $1
No risk of liquidations: Users mint USC and are not exposed to the volatility of ETH
High yield from arbitrage: Our stability mechanism arbitrages the volatility of the LST reserves on the upside and downside and demand fluctuations on the stablecoin, redistributing a part of the revenue to the stablecoin stakers vs CDPs that isolate user’s collateral without benefiting the stablecoin from arbitrage (or liquidations)
Capital efficiency: USC is continuously minted 1:1 against ETH and LSTs vs CDPs that require overcollateralisation
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