What Is Governance Token? Understanding Its Importance in Decentralized Systems
A Comprehensive Guide to Governance Tokens: Empowering Community Governance and Decision-Making
By reading the article “What is Governance Token” published in Adaas Capital, you will get acquainted with the concept of Governance token in general. This level of familiarity can be enough when you need educational information about this topic.
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What is the Governance token exactly?
One of the main problems for holders of a token (cryptocurrency) is the management and decisions of the project officials. Fear that project managers will make wrong decisions or make decisions based on their own interests.
In this regard, a basic concept called governance tokens or in the cryptocurrency market was formed that democratically regulates the management of a cryptocurrency or project so that users and holders of that token can participate in the management and decisions of that project.
The relationship between governance token and DeFi.
Governance tokens have become very popular these days. Holders of governance tokens actually benefit from the decision-making power and participation in the survey of DeFi projects, which also contributes to the growth of the Ethereum ecosystem, on which 90% of DeFi projects operate.
However, there are still many users who do not know the importance of these tokens, which have certainly become better known among users with the growth and popularity of this concept. The governance token has in fact provided a platform for the token’s investors to participate in the management discussions and decisions of the project, where users can participate in the voting process with the project token that governs the development and growth of the platform network.
In fact, the voting system is such that each governance token is equal to one voting right, meaning that the more individual governance tokens there are, the more voting rights there are in the decisions of that project.
Cryptocurrencies that are governance:
The LEND token is the Aave protocol governance token; This protocol works in a decentralized way in the field of lending and borrowing. In order for users of this protocol to have the right to vote in Aave decisions, they must stick the LEND token in this direction.
The BAL token is a Blanacer exchange governance token that owners can use to participate in the management decisions of this platform.
The company has a cash extraction that users receive a BAL token in return for the extraction.
The MKR token is a governance token that belongs to the DAO Maker platform; MKR tokens are also used to raise capital in the DAO MAKER ecosystem.
The company, which operates in Singapore, works in the field of lending.
Due to the activity of this token in the MAKER defense project, it can be named as one of the best governance tokens.
The compound is a decentralized protocol that provides a platform for users to receive and lend.
The compound digital currency has been the main currency code of the Compound network, which Comp token holders are able to comment on the management of this network.
In fact, the Comp token brought the governance and build farming tokens to the attention of the cryptocurrency community, so that the token was able to see a 400 percent growth in a short time.
The popularity of governance tokens:
In the first few months of 2021, the governance and yield farming tokens have experienced tremendous growth.
In fact, these tokens have made the cryptocurrency community realize the value and importance of DeFI projects. Also, in this release, the Compound token has become the basis of the governance token structure.
The second project to benefit from the glow of governance and build farming tokens was the Balancer (BAL) token. This protocol was designed and built-in in 2017 and 2018 and was released in 2020 with the Government token.
The remarkable thing about BAL tokens is that they are neither made nor distributed, and in fact, their users receive BAL tokens in return for extraction.
The main reasons for the popularity of governance tokens:
In fact, there are two main reasons for the sudden popularity of governance tokens.
The first is that DeFi projects that have provided governance tokens have proven to be a safe and secure way to earn returns.
And the second is that defense projects and government tokens generate sustainable returns through the interest rate and fee mechanism. For this reason, holders of government tokens believe that there is a great chance to increase the acceptance and acceptance of DeFi projects among the people of the world.
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What is the Governance token?
One of the main problems of the holders of a token is related to the management and decisions of the project officials. Fear that project managers will make wrong decisions or make decisions based on their own interests.
Cryptocurrencies that can be named in this field: