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The Cave Dwellers and Plankton serve the Chum Balls to the customers that go into the Chum Caverns to buy food. The only fish who are seen ordering Chum Balls are Billy, and three other fish (besides SpongeBob). The fish claim it is disgusting (which is expected), but they're eating it just for the beautiful scenery of the Chum Caverns.
Chum Balls look like regular chum rolled into a meatball form. They look familiar to Chum Nuggets.