Governance Model

The Smart Yield governance model is designed to allow the community to decide on liquidity allocation while ensuring transparent and effective processes. The following provides an overview of the major components and processes that form this governance framework.

Core Concepts: Strategies and Positions

Let’s reiterate the two concepts that Smart Yield is based on to see how they are governed.

• Strategies: These are a set of rules that determine how liquidity will be distributed among positions to maximize APY for any given year, without ever overshooting above a predetermined threshold, determined based on market conditions.

• Positions: These are specific pools or earning opportunities—a Compound pool—for example. Positions represent the places where liquidity goes to derive returns.

The Voting Process

In order for this to remain adaptive and community-driven, new positions are proposed and voted on. Here is how this works:

1. Position Proposal:

One must stake to propose a position. This ensures that proposals are made thoughtfully and with vested interest.

2. Community Vote:

The community votes on the question:

"What maximum percentage of Common's total value locked (TVL) should be allocated to this position?"

Voting must reach a quorum of 5% of the community for voting to be valid.

3. Whitelisting Positions:

If the quorum is met, the position is whitelisted with the allocation threshold set as the median percentage from the votes. A 0% threshold means the position is not whitelisted.

4. Implementation:

Approved positions are integrated into the system as fast as possible by the team.

Role of Strategies

While positions determine where liquidity can be allocated, strategies define how liquidity is distributed across those positions. Strategies offer flexibility in alignment with different risk and reward preferences.

Some examples include:

Balanced Portfolio Strategy:

No position will have more than 20% of liquidity.

Only includes medium-risk positions for diversification.

High-APY Strategy:

Prioritizes high returns, with no more than 10% liquidity allocation to any one position, regardless of risk rating.

They can select from predefined strategies, create their own, or follow the strategy of other users with the ability to structure an approach tailored for each individual's goals.

On-Chain Governance Model Benefits

• The community is engaged in a vote to determine which positions to support.

• Thresholds via votes and strategies reduce risks by preventing too much exposure to any particular position—this is Smart Yield’s risk management model.

• Customers can therefore align their investments to be compatible with their personal preferences and risk tolerance.

This community-driven approach makes the Smart Yield model strong and adaptable, featuring a system of balancing risk and returns with total transparency.