Chi Protocol — The World’s First Scalable Stablecoin Backed by LSTs

Good day,

In this article, we aim to give a clear and straightforward picture of Chi Protocol with few technicalities.

To begin with, Chi Protocol’s core team wants to thank the DeFi degens who built the foundation and made the design of Chi Protocol possible. Thank you, sers.

Let me first give you some context: Chi Protocol’s development started in February 2023, when Arthur and Luke were researching stablecoins and realised that there was a gap to be filled in DeFi: achieving stability with decentralisation and scalability (stablecoin trilemma). As they went along, they kept refining ideas and exploring new concepts to create Chi Protocol v1. Now, let’s get into the details!

Chi Protocol is a newly designed decentralised and scalable stablecoin protocol which uses a Dual Stability Mechanism to keep stability and preserve solvency. USC is the first (USD pegged) stablecoin issued by Chi Protocol which will initially be fully backed by stETH.

In simple terms, the protocol’s smart contracts alternate between two stability mechanisms, which come into play depending on the stablecoin’s price (above or below $1) and the protocol’s solvency state (excess or deficit of reserves). For any de-peg scenario, an arbitrage opportunity brings USC back to peg while retaining solvency.

Chi Protocol will:

• issue decentralised and scalable stablecoins always at the cost of 1 unit of an underlying currency
• distribute the staked ETH yield to CHI stakers
• have its governance controlled by veCHI holders.
• establish a treasury while retaining protocol-owned liquidity, similar to the DSO (DAO Shares Options) approach taken by Tapioca Dao.

All of this has been made in a way that the growth of the protocol benefits CHI token stakers and holders. That is, contingent on the protocol’s solvency state, high demand for the stablecoin translates into either an expansion of the protocol’s staked ETH reserves (more yield for CHI stakers) or a contraction of CHI supply (price of CHI rises).

While USC holders are those who own the debt of the protocol, they can stake their USC to earn more USC. This is unique as it makes staked USC generate a variable yield received in the form of a stablecoin.

Two things can be mentioned at this point:

• Post-launch, veCHI holders can propose and vote to add new types of reserves tokens in the category of LSTs
• The DSO model designed by Chi Protocol will offer a way for LPs to leverage their trading fees in the Uniswap liquidity pools.

Instead of leaving you to speculate, let’s share what we can about our current stage:

Fundraising :

• As of now, we have been bootstrapping the protocol from the initial contributors’ funding

Development :

• We’ve completed around 90% of the code (contracts).
• A few non-critical/structural contracts are left to develop, but we haven’t encountered any major issues so far.
• We’ve begun testing some of our contracts, and we’ll share more about our testing process soon
• Some contracts are ready for audit

Communication and community building :

• We will start communicating more as we end the protocol development. Many articles will follow, the official Discord is opened, and we will be more active on Twitter. We held off on marketing until we were confident in our main product strategy.

That’s all for now. More information will be revealed later. Thanks for reading!