What Is A Governance Token In Cryptocurrency?
Want to invest in cryptocurrency wait, do you know What Is A Governance Token In Cryptocurrency? When we talk about cryptocurrency, mentioning tokens is mandatory. While mainly there are two types of tokens fragile and non-fragile. However, you will find a lot of tokens have their benefits.
But the unique token among all of these tokens is the governance token. Hence the governance token is the most critical part of decentralization. You will get many opportunities by holding a single governance token, including voting power. And right to shape the protocol’s future.
There is much debate about other tokens as governance tokens are the invention. Voting is not the only feature of governance tokens, as you can use them for many different purposes, including taking loans, earning money using yield farming, and many more.
What Are Governance Tokens In Cryptocurrency?
Developers provide governance tokens. Later these token holders use them to decide the protocol’s future. Hence, these governance holders can change the governance system of any project. Also, they can give suggestions about any new feature of different proposals. These token holders have an opportunity to have a decentralized protocol.
Additionally, any governance token holder can easily control the future direction of protocols. Make sure to collect a lot of governance tokens, as it will give you a chance to vote. So more governance token means more voting power.
Collecting governance tokens gives you a lot of benefits apart from voting power, including you can decide how to payout any project’s budget. Also, you can determine the features you want to add in the coming months.
When we talk about Decentralized Autonomous organization, you can consider governance tokens as a critical decision-making mechanism. Moreover, many different protocols adjust the proposal submission process, and later you can develop your proposals.
What Is A Governance Token In Cryptocurrency: Token Working
So finally, when you have learned What Is A Governance Token In Cryptocurrency? Here comes the question what will it do for you, or can you say how it will work? The answer is simple. Developers give these governance tokens to their most active users. This may be based on your loyalty or how much you contribute to the community.
So now it’s your turn to use these tokens in different ways, which may include using them for the strong development of the project by voting on their significant issues. Typically voting is done by smart contracts, which means you don’t have to do calculations, this will be implemented automatically.
Maker DAO was the one to issue the first governance token, which was later called MKR. Like other governance tokes, the holders of MKR will get only one chance to vote.
But these token holders can vote on different issues, including appointing new team members. Or you can also vote to adjust the fees or tell them to adopt any new rule.
Advantages Of Governance Tokens In Cryptocurrency:
No doubt, governance tokens are very advantageous. Apart from voting on different purposes, you can also get many advantages by this token as mentioned below:
As we discussed before, the main goal achieved by digital assets is decentralization. So the developers can put De in DeFi only through governance tokens.
- Opportunities To Collaborate:
Through these governance tokens, you can get a chance to vote; by voting, you can discuss, and by discussion, you can collaborate with others. When token holders can vote on the issues they face, this will boost collaboration with other community members.
- Communities Will Be More Involved:
By having governance tokens, you will have the right to get a reason and a method to guide any project’s path and direction.
Cons Of Cryptocurrency Governance Tokens:
Apart from advantages, there are some disadvantages, so here we will discuss some cons of using governance tokens in cryptocurrency.
Just because you got the opportunity to vote doesn’t mean everyone will vote for the best outcome. , there may be some selfish token holders who will vote on that decision which can benefit only themselves.
- Lack Of Accountability:
If we talk about democracy-based governance models, accountability is not possible. In case the token holder’s decision goes completely wrong, the community will blame groups that are not clearly defined or are invisible.
Every governance protocol has that one whale who collects the project tokens. These whales have sheer power, meaning they can use their control and can get most of the tokens.
Are Governance Tokens In Cryptocurrency Valuable?
After learning What Is A Governance Token In Cryptocurrency? You know how to use it but are these tokens valuable? No doubt these tokens are powerful because of the opportunity to develop any project you want. If all the decisions are taken sincerely, you can make the entire organization successful and efficient.
Moreover, you can easily guess the value through this: you can trade, swap, staked, or exchange these governance tokens easily. Furthermore, you can easily earn passive income by increasing access to services. One more thing is that when the project becomes successful, it will also become more valuable.
Summing up, in the end, governance tokens are developing day by day as we all get the answer of What Is A Governance Token In Cryptocurrency. But by having these tokens valuable? Yes, these are because using these tokens can facilitate the project’s strong growth. All the governance token holders have voting power to alter the overall project structure.
Including you can also change reward distribution, choose a new place, choose a method of paying the upcoming budget, and many more. Although there are many plus points of using these tokens, there are some negatives too.
Some of the governance tokens get selfish and vote for the things that will benefit them only. Hence, if any decision goes wrong, the community always blames the invisible token holder. Remember to collect a large number of governance tokens. This will give you a chance to vote more.