# Mechanism

## **Rebalance mechanism**

Clovis employs a **multi-layered liquidity optimization strategy** that operates across all supported chains. The protocol's **cross-chain rebalancing mechanism** automatically maintains optimal fund distribution across the entire network, while **local reserves** utilize safety coefficients to ensure sufficient liquidity for emergency withdrawals on each chain.

Within each local reserve, a dedicated allocation coefficient enables the **automated investment of idle funds into carefully vetted same-chain protocols** to generate passive yields. The protocol implements stringent risk management criteria: investment amounts cannot exceed safe percentage thresholds of target protocols' TVL, all positions maintain immediate liquidity without lock-up periods, and continuous mempool monitoring enables preemptive fund recovery before potential protocol emergencies.

This architecture enables users to deposit into Clovis and **automatically receive proportional yields from the entire cross-chain ecosystem,** without needing to understand the underlying complexities or track individual chain performance differences. All yields are aggregated across chains and distributed proportionally based on users' fund contributions, creating a unified, hands-off yield generation experience.

### **Penalty and Incentive program (Embedded in the Rebalance mechanism)**

Clovis implements a sophisticated **hub-and-spoke architecture** that maintains optimal liquidity distribution across multiple chains through dynamic rebalancing mechanisms. The protocol establishes three critical liquidity thresholds: **Rmin**, **Ropt**, and **Rmax** to ensure efficient capital allocation while minimizing bridging costs.

#### **Penalty structure**

The system employs a **tiered penalty framework** that activates when user transactions push spoke chain liquidity ratios below optimal levels. When the post-transaction ratio falls below Ropt, users incur skew penalties calculated using the formula: **`Penalty = Amount × Alpha × (Ropt - Rpost) ^ Beta`**, where Alpha & Beta = positive constant.

**Penalty severity scales with liquidity imbalance:**

1. **Above Ropt**: No penalty
2. **Between Rmin and Ropt**: Moderate penalty with partial incentive allocation
3. **Below Rmin**: Maximum penalty with forced rebalancing

#### **Phased incentive evolution**

In the long run, the incentive program operates on a **"shortfall-based distribution"** model, calculating the exact liquidity deficit as **`(Ropt - Rpost) × Global TVL`**. New deposits up to this shortfall amount share the accumulated penalty pool proportionally through automatic airdrops, creating immediate economic incentives for rebalancing behavior.

### **Risk management**

Critical safeguards include **forced bridging triggers** when ratios breach minimum thresholds, **mempool monitoring** for protocol security, and **manual override capabilities** for exceptional circumstances. The system maintains strict bridging cost caps at a specific basis points, ensuring rebalancing operations remain economically viable while preserving user experience through immediate local liquidity access.

### **Five-step information flow with messaging thresholds**

Clovis employs a **sophisticated five-step information flow system** with multiple messaging thresholds (an **N/M multi-threshold consensus model** to ensure the safety and reliability of cross-chain asset settlement) to ensure secure and efficient cross-chain operations. This system provides users with real-time updates on transaction progress across different blockchain networks, enhancing transparency and user experience during cross-chain operations