How does the protocol work?

The Sommelier protocol is a Cosmos SDK-based proof-of-stake chain for coordinating updates to smart contracts implementing investment strategies (referred to as "cellars"). Stakers of the SOMM token use governance functionality to approve of cellar contracts that have been deployed. Once approved, strategists update the investment positions of cellars for depositors in response to market conditions by sending update recommendations to validators, who then vote to approve an update. When a consensus of staked power has agreed, these updates are applied to the cellars using Sommelier's fork of the Gravity Bridge, which is the mechanism by which the Sommelier protocol communicates with Ethereum. As compensation for providing these services, depending on the specific configuration of a given cellar, the strategist and the protocol itself receive fees as a percentage of total assets and/or performance. Fees received by the protocol are currently held in a module account and in the v7 upgrade will be auctioned for SOMM, with the proceeds being distributed pro rata to stakers of SOMM.