What are Governance tokens?
4 users upvote it!
2 answers

Governance tokens are management tokens, i.e. cryptocurrencies that represent the power of voting in the Blockchain project. They are mostly integrated into Defi projects as they need to distribute permissions and rights to users to remain decentralized. With these tokens, you can create and vote on governance proposals. In this way, users directly influence the direction and properties of the protocol. For example, you can change the UI, or how DEX is supposed to distribute fees, what dev funds are used, and all other relevant considerations. Despite the fact that many Defi tokens on the market are management tokens, this does not mean that voting is their only function. In fact, these cryptocurrencies often allow the user to stake, create loans, and earn money by farming. However, their sole and primary purpose is power. Without it, most projects would not have the right to be called decentralized. There are many first-generation cryptocurrencies that pride themselves on being decentralized, but lack the basic function to create a governance model. Manages also allows users to actively make changes to smart contracts. For example, if hackers attack a project and steal funds or make any other changes, users and developers are not forced to fork the network (hardfork). They can simply vote to restore order, and once a quorum is reached, developers will have every right to implement the necessary changes. There is no mining involved, and the decision-making process is limited to only those who are quite literally financially “invested” in the project and platform. Think of it as shareholders who benefit from the success of companies.
Governance tokens are management tokens, i.e. cryptocurrencies that represent the power of voting in the Blockchain project. They are mostly integrated into Defi projects as they need to distribute permissions and rights to users to remain decentralized. With these tokens, you can create and vote on governance proposals. In this way, users directly influence the direction and properties of the protocol. For example, you can change the UI, or how DEX is supposed to distribute fees, what dev funds are used, and all other relevant considerations. Despite the fact that many Defi tokens on the market are management tokens, this does not mean that voting is their only function. In fact, these cryptocurrencies often allow the user to stake, create loans, and earn money by farming. However, their sole and primary purpose is power. Without it, most projects would not have the right to be called decentralized. There are many first-generation cryptocurrencies that pride themselves on being decentralized, but lack the basic function to create a governance model. Manages also allows users to actively make changes to smart contracts. For example, if hackers attack a project and steal funds or make any other changes, users and developers are not forced to fork the network (hardfork). They can simply vote to restore order, and once a quorum is reached, developers will have every right to implement the necessary changes. There is no mining involved, and the decision-making process is limited to only those who are quite literally financially “invested” in the project and platform. Think of it as shareholders who benefit from the success of companies.
Machine translated

Machine translated