This is essentially a system where if you want something, you present your interest. Your raid attendance, the last time you acquired loot, and other important factors are plugged into a formula that represents who should have priority. The leadership gets involved only out of absolute necessity in the event an item needs to go somewhere for the advancement of the guild. Aka Tanks and Clerics in velious.
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This chart has some level of representation of how the system would yield out the most deserving person at a certain given point in time.