diff --git a/contracts/.changesets/README.md b/contracts/.changesets/README.md
new file mode 100644
index 00000000..f7213707
--- /dev/null
+++ b/contracts/.changesets/README.md
@@ -0,0 +1,83 @@
+# Changesets
+
+This directory contains version bump declarations for contract changes.
+
+## How It Works
+
+When you modify contracts in `contracts/src/`, you must declare a version bump by running:
+
+```bash
+bun cli contracts bump --type [major|minor|patch] --description "Optional description"
+```
+
+This creates a file like `pr-123.txt` (or `bump-{timestamp}.txt` if not in a PR) containing:
+- First line: The bump type
+- Subsequent lines: Optional description of the changes
+
+## Release Workflow
+
+1. **Development**: Developers create changesets for their contract changes
+2. **Before Release**: Manually trigger the "Contracts Versioning" GitHub Action
+3. **PR Creation**: The action creates a PR with:
+   - Updated `VERSION` file
+   - Updated `versions-matrix.json`
+   - All changeset descriptions in PR body
+   - Deleted changeset files
+4. **Contract Upgrade**: Checkout the PR branch and run `bun cli contracts upgrade`
+5. **Merge**: Merge the PR to main after upgrade completes
+
+## Example Workflow
+
+```bash
+# 1. Make contract changes
+vim contracts/src/DataHavenServiceManager.sol
+
+# 2. Declare version bump with description
+bun cli contracts bump --type minor --description "Add support for custom validator rewards"
+
+# 3. Commit the changeset file
+git add contracts/.changesets/
+git commit -m "feat: add custom validator rewards"
+
+# 4. Push PR - CI validates changeset exists
+git push origin feature-branch
+
+# 5. On merge to main, changesets accumulate
+
+# 6. Before release, manually run GitHub Action "Contracts Versioning"
+
+# 7. Action creates PR with version bump
+
+# 8. Checkout PR and upgrade contracts
+git checkout release/version-X.Y.Z
+bun cli contracts upgrade --chain hoodi
+
+# 9. Merge PR to main
+```
+
+## File Format
+
+Each changeset file contains:
+- **Line 1**: Bump type (`major`, `minor`, or `patch`)
+- **Lines 2+**: Optional description of changes
+
+Example `pr-123.txt`:
+```
+minor
+Add support for custom validator rewards distribution.
+This allows operators to configure reward multipliers per validator.
+```
+
+## Version Bump Rules
+
+- `major` - Breaking changes (X.0.0)
+- `minor` - New features, backwards compatible (0.X.0)
+- `patch` - Bug fixes, backwards compatible (0.0.X)
+
+## Aggregation Rules
+
+- One or more changeset files per PR
+- CI fails if contracts changed but no changeset exists
+- Multiple changesets are consolidated by taking the highest bump type
+- **Multiple major bumps are aggregated into a single major version bump**
+- Changesets are deleted after processing (clean main branch)
diff --git a/contracts/.changesets/pr-195.txt b/contracts/.changesets/pr-195.txt
new file mode 100644
index 00000000..dbcae144
--- /dev/null
+++ b/contracts/.changesets/pr-195.txt
@@ -0,0 +1 @@
+patch
\ No newline at end of file
diff --git a/contracts/.gitignore b/contracts/.gitignore
index 56cb5437..19389331 100644
--- a/contracts/.gitignore
+++ b/contracts/.gitignore
@@ -13,3 +13,7 @@ docs/
 
 # Local CLAUDE configuration
 CLAUDE.local.md
+
+# Changesets - track changeset files but not .gitkeep
+# Empty .gitkeep is only needed for directory tracking
+.changesets/.gitkeep
diff --git a/contracts/VERSION b/contracts/VERSION
new file mode 100644
index 00000000..524cb552
--- /dev/null
+++ b/contracts/VERSION
@@ -0,0 +1 @@
+1.1.1
diff --git a/contracts/versions-matrix.json b/contracts/versions-matrix.json
new file mode 100644
index 00000000..3351c674
--- /dev/null
+++ b/contracts/versions-matrix.json
@@ -0,0 +1,17 @@
+{
+  "code": {
+    "version": "1.1.1",
+    "checksum": "2b642ee7ac050226e05369845732014d8d7349ea",
+    "lastModified": "2026-02-06T19:54:59.232Z"
+  },
+  "deployments": {
+    "anvil": {
+      "version": "1.1.0",
+      "lastDeployed": "2026-02-06T19:49:51.230Z"
+    },
+    "hoodi": {
+      "version": "1.0.0",
+      "lastDeployed": "2026-02-05T18:06:00Z"
+    }
+  }
+}
\ No newline at end of file