Proposed SHx Governance Rules

Proposed foundational rules for how SHx governance is conducted. Notes are provided for informational purposes only and are not part of the SHx Governance Rules.

Article I: Fundamental Principles

1. These Rules establish the governance framework for SHx on the Stellar Network.

2. This is the foundational document to build trust, increase transparency, and ensure the security of the SHx voting process.

Article II: Definitions

1. SHx Token: The token created with the ID SHX:GDSTRSHXHGJ7ZIVRBXEYE5Q74XUVCUSEKEBR7UCHEUUEK72N7I7KJ6JH on the Public Global Stellar Network. SHx is divisible to 7 decimal places.

   1. The SHx Soroban Contract ID is CCKCKCPHYVXQD4NECBFJTFSCU2AMSJGCNG4O6K4JVRE2BLPR7WNDBQIQ

   2. SHx has been created on the Ethereum network as an ERC-20 compatible token with the address 0xee7527841a932d2912224e20a405e1a1ff747084

2. Total Supply: The total number of SHx tokens existing on the Stellar Network.

3. Circulating Supply: The total number of SHx tokens released and available for participation in governance. Does not include tokens in designated reserve or locked accounts. Includes SHx released and available on both the Stellar and Ethereum networks.

4. Active Circulating Supply: Circulating Supply, with balances in inactive accounts excluded. Inactive accounts are those which have not recorded valid transactions to the ledger in the previous 3 years (1095 days) from the calculation date. Active Circulating Supply will be reduced by a vote by the voting power that indicates it is not participating in a vote.

5. Super-Majority: Requires a 2/3 (66.67%) vote in favor

6. Simple-Majority: Requires a 50% +1 vote in favor

7. The SHx Governance Rules: This document, which serves as the supreme governing document for SHx governance.

8. The Rules: The operational procedures and guidelines established by this document.

9. Snapshot: A record of token holdings at a specific ledger number used to determine voting power.

10. Quorum: The minimum participation threshold required for a vote to be valid.

Article III: Governance Structure

Section 1: Proposal Types

1. Governance Rules Amendment: Any major proposal that amends the established SHx Governance Rules document and requires a super-majority vote (66.67% in favor)

2. Normal Proposal: Modifications to processes and procedures that require a simple majority (50% +1 in favor)

Section 2: Amendment Powers

1. Governance Rules Amendments

   1. Require a super-majority vote of 2/3 (66.67%) in favor

   2. Require a minimum Quorum of 25% of the Active Circulating Supply

   3. Must be clearly labeled as Amendments in proposals

2. Normal Proposals

   1. Require a simple majority vote of 50% + 1 in favor

   2. Require a minimum Quorum of 1% of the Active Circulating Supply

   3. Abstentions are recorded and will count to Quorum. However, they are NOT counted toward the final percentage calculation.

   4. Non-participation will not impact Quorum and will reduce the Active Circulating Supply for that vote.

Section 3: Question Formats

1. Binary Choice

   1. “For”/“Against” voting options

   2. “Abstain” option available but not counted toward final percentages

2. Multiple Choice

   1. Three or more distinct options

   2. Highest percentage winner

   3. Abstain option available

3. Weighted Average

   1. Where votes for a percentage are totaled for a final weighted percentage

   2. Used for budget distribution and similar numerical decisions

Article IV: Proposal Process

Section 1: Proposal Lifecycle

1. Community Discussion

   1. Initiated in the designated public forum

   2. Open Community Discussion period for community feedback

   3. Time limits to Community Discussion will be determined by the community

2. Draft Proposal

   1. Formal proposal document created in the public forum

   2. Must follow standard Proposal Template:

   3. Continued Community Discussion and refinement

3. Preliminary Vote

   1. Preliminary vote to gauge community support in public forum

   2. Requires minimum endorsement voting power threshold equal to 50% + 1 of the Quorum requirement of a Normal Proposal

   3. Must pass endorsement to proceed to formal vote

4. Governance Vote

   1. Vote leaves public forum and is uploaded into the SHx Voting Tool

   2. Binding votes on the Stellar Network

   3. Clear start and end times defined by ledger numbers

Article V: Voting Mechanics

Section 1: Voting Power

1. Calculation based on SHx holdings at Snapshot

2. One token equals one vote

3. Voting power is calculated as the number of SHx in that account's possession at the vote's designated ledger snapshot. Fractional SHX balances are not counted. For example, an account holding 24,591.9135 SHX in the ledger snapshot will have a voting power of 24,591.

Section 2a: Stellar Voting Process

Voting Requirement

A Manage Data operation must be submitted to the ledger with the source account being the voting account. The last operation that the account submits within the voting window will be taken as the vote cast by the account.

The data entry must be formatted as follows:

• name => "SHX::PROP:"<proposal number>e.g. "SHX::PROP:1"

• value => comma delimited vote positions, e.g. "FOR,40" ('for' the first question, at a 40 value for the second).

Note: Many Stellar/Horizon tool and libraries will base64 encode the ASCII bytes for you for submission: note that some blockchain explorers display the data value as decimal bytes. This will not prevent the counting of votes.

Reference Voting Implementation

The Reference Voting Implementation (hosted at vote.stronghold.co) submits a vote to the ledger in the following manner:

A single transaction, having two operations and the memo "SHX PROPOSAL <proposal number> VOTE"

• Operation 1: manageData(name: "SHX::PROP:<proposal number>", value: "<vote positions>")

• Operation 2: manageData(name: "SHX::PROP:<proposal number>", value: "")

The second operation clears the data entry so the account does not incur an ongoing reserve cost. It is not required for the vote to be counted.

The memo on the transaction may be used to store metadata for the voting tool, e.g. analytics.

Vote Management

• Voters may change their vote during the voting period by submitting another valid vote to the ledger

• An accounts last vote within the voting period recorded overrides all previous votes

• No votes accepted before start ledger or after end ledger

Voting Windows

• Voting window start and end times will be determined upon Proposal approval

• Start ledger number will be determined as the last ledger that ‘closes’ prior to or at the Proposal’s approved voting start time

• End ledger number will be determined as the first ledger that ‘closes’ at or after the voting end time

Section 2b: Ethereum Voting Process

Voting on Ethereum is conducted using the Snapshot platform. The SHX governance space can be found at https://snapshot.box/#/s:strongholdco.eth

The operation of the Snapshot space should as closely as possible follow the voting mechanics set forth for the Stellar Voting Process.

Note: SHx Ethereum voting is currently underutilized and so the voting process is not well defined in these Governance Rules. If Ethereum voting usage increases, it is recommended that these Governance Rules be amended as appropriate.

Article VI: Implementation

1. The SHx Governance Rules Document becomes effective upon receiving a super-majority approval vote from the SHx holdership

2. All previous governance documents are superseded by the SHx Governance Rules

Article VII: Amendments

1. Proposals to amend SHx Governance Rules must:

   1. Be approved by the supermajority

   2. Clearly state the text to be modified

   3. Provide rationale for the change

   4. Include implementation timeline

   5. Follow the formal proposal process

2. Approved amendments become effective:

   1. According to the timeline specified in the proposal

   2. No sooner than 24 hours after vote confirmation

   3. No later than 30 days after vote confirmation