How staking USC earns additional USC and stETH yield?

In this article, we’ll explore the various sources of yield when staking USC (stUSC). You might be curious about how staking USC not only earns you more USC but also yields stETH. This article is here to provide you with insights into the mechanisms behind this yield generation.

Let’s begin with some basics. How does Chi Protocol work?

USC is a censorship resistant, decentralized, scalable and with embedded yield stablecoin built on Chi Protocol. Anyone, whether an individual or an organization, can mint USC with a 100% collateral ratio against their ETH or LSTs and stake it within the Chi Protocol. This minting process adds the LSTs into the protocol’s reserves, and the yield they generate is transferred to CHI stakers (stCHI). This innovative design addresses critical issues in the decentralized stablecoin space by enabling scalability (1:1 minting), offering real yields beyond governance tokens, and bridging the gap in stablecoin yields.

The stability mechanism is designed to keep the price of USC stable at $1 on the main Uniswap market (USC/ETH pool). If the USC price goes above or below $1, the arbitrage contract steps in to buy or sell USC to bring it back to $1 and maintain a 100% collateral ratio.

In this system, CHI benefits when the USC supply expands. When USC’s price is above $1 and reserves are in deficit, the arbitrage contract mints new USC to buy ETH. The ETH is then converted into LSTs and added to the reserves. Conversely, when the protocol has extra reserves, it uses them to buy back CHI and burn it.

The challenge with automated stablecoins is that when their price drops below $1, they are typically bought back and burned. However, Chi Protocol has a different approach. If the protocol has more reserves than the stablecoin supply, and the USC price on Uniswap is below $1, the arbitrage contract redistributes the value of the extra reserves. It does this by buying USC with ETH and giving it to stUSC holders, preserving the value of the stablecoins and increasing stUSC yield.

Conclusion

stUSC embodies all the properties of a DeFi-native stablecoin: it generates yield, is scalable, and operates in a permissionless manner.

When users stake USC, they not only gain the fundamental advantages of preserving their wealth in a secure store of value but also have the opportunity to earn interest denominated in USD, paid in stablecoin, and native staking rewards tied to the most attractive asset in crypto, ETH.

In the real world, both individuals and institutions require a globally accessible and unrestricted alternative to traditional USD. If there is a demand for a digital dollar asset that offers no return exceeding $120 billion, we envision an equivalent instrument that externalizes returns while involving users could potentially be orders of magnitude larger in terms of demand and utility.

Be sure to come along with us on this journey by keeping in contact with us through our social media channels at:

Twitter: https://twitter.com/ProtocolChi

Discord: https://discord.com/invite/d5BswV5scv

Website: https://chiprotocol.io/

Docs: https://chi-protocol.gitbook.io/docs/background/chi-protocol