i have the same thing on my tri bike (cannondale slice). no idea how it happened...wheel must have been crooked in dropouts one day. i've been riding it for at least a year with no problems.

that said, probably not the worst idea to clear-coat it at the very least.

Its a CX bike and if its used anything like mine will after a season have rubs and chips all over it.. personally i'd whack some clear coat over it (which may rub down in the mud anyway) and crack on (no pun intended)..

Maybe after a few seasons when its really ropey get the whole frame re-cleared...

Without better pictures, it's hard to say for certain but the way light reflects certainly suggests we're looking at layers of carbon - specifically unidirectional. If you tilt the frame back and forth in the light, does the light reflect like paint or a more iridescent/mirror-like sheen that carbon has? That looks like the case in your pictures, rather than a light gray body filler.

When doing repairs and taper sanding through carbon, a person counts the plies by noting the non fiber regions between plies - this can be further defined in a woven looking at the top, middle, and bottom of a ply. So, without better pictures to convince me otherwise, that's what I think we're looking at here. The relatively good news, each ply is probably in the 0.004-0.007" range and it looks like you may have gone through 1ish ply. The chainstay, and frame for that matter, are generally sized for stiffness rather than strength. In my experience (aerospace structures) that produces components that are 3-5x stronger than required due to throwing material or geometry in for stiffness.

You could paint or clear over it, but that doesn't really matter; carbon and resin (plastic) aren't going to corrode. Check your tire clearances and ride the hell out of it. Or if it's a 58cm Crux disc, it's definitely trash and you'll have to sell it to me cheap ;-)

What I see...

You're totally fine. Ride it. Maybe paint it for some future protection

Took it down to a body shop that has experience painting carbon fiber bike frames. They want $125 to fix this. I'm not disputing the cost...they'll have to mix 3 colors (Light Grey, Dark Grey and Red). I'm just wondering if it is worth my time or if I am just as good if I put a few coats of clear coat on it. One thing I like is they shop would build up the area with some type of resin to level it.

If the appearance of the interior of the chainstay at the, by definition, smallest clearance area is important to you - paint it.

The exposed fibers are just as resistant to the environment as a frame with clearcoat from the factory. I mean, technically, moisture will diffuse slightly more quickly to the fiber level in that area than painted areas but I'm only mentioning it because being a pedant is a lifestyle choice.

The body shop filling with resin only serves a cosmetic purpose. The resin does not provide the strength in a composite laminate (at least in a PMC like this) and only removes the clearance your tire provided free of charge. From my previous post, it looks like you're less than 2 plies into the chainstay, which means they're going to 'level' it back ~0.010" or less. Remember, an average human hair is only 0.004" in diameter, so they're going to bring it back two average hair diameters?

All good points. If I throw some clear coat on myself any advice on what to do or not do?

Normally I'd tell you to abrade the surface to activate the surface energy - scrubbing it with a scotch brite pad is the most common way I can think to describe. You're looking to, sorta, sand the surface without removing material if that makes sense. Clean with a solvent - alcohol or acetone - air dry or wipe with clean/oil-free rag, and apply clear sealant. You want to do the abrade (which is probably optional in this case) and solvent wipe within, say, 2 hours of applying the clear.

As far as the clear coat, a two-part paint is best (most durable) or a single-stage to cure paint is acceptable.

If the above procedure can produce a structural bond capable of >2,000 psi shear should be good for a quick clear shoot.

Honestly, if it were me (and I was actually going to do something) I'd mask off the area, wipe with acetone, let air dry, shoot with clear Krylon and call it a day.

This is great advice. Thank you. I'm leaning the direction of not paying someone $125 to paint it because #1 it's in a non visible place and #2 chances are high it will get scraped or scuffed again. It's a CX bike not a Ferrari.