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What Are Governance Tokens?

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@finguru
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The blockchain network is a decentralized system that relies on the consensus of its users to reach an agreement on how transactions are handled. In order to get this consensus, most blockchains use some sort of voting mechanism in their governance model. However, traditional voting models aren't applicable to blockchain networks because they don't provide any way for token holders to make decisions about protocol changes or developments. This is where governance tokens come in. These tokens allow people to vote on decisions that affect the state of a blockchain and can be used in various ways.

Intro To Governance Tokens

Governance tokens allows token holders to vote and make decisions on how the protocol develops. They give users an active role in making decisions for a project, which can have positive effects on the future development of the platform.

They are often used to decide whether or not changes should be made to a blockchain protocol, what these changes should be, and when they will take place. The best example of a governance token is HIVE or SPS. Both will give you power and influence on the platform. You can literally use your stake and decide in which direction the community will go. The proposal system of HIVE allows any app to get funding from Hive's native DAO known as DHF. Using your stake, you can vote on different proposals and choose the ones that bring the most value to the network.

While governance tokens are technically a type of utility token (a token that gives holders access to a platform or service), they're not intended to be used as payment or value transfer mechanisms. Rather, they represent ownership in the network itself—like stock shares in an organization—and when held by multiple stakeholders together allow them to collectively vote on issues affecting it.

Voting Power Is Proportional To Stake

Holders can vote on everything from project direction, funding decisions and product features through to allocating resources like developer time and community development efforts across different projects in an open source environment where anyone can contribute. Your voting power depends mostly on the number of tokens you hold. If you want more power, then you need to have a bigger stake. The more tokens you have, the more influence your votes will have on how the project is run and what decisions are made.

Staking is a common [DeFi]( approach that is used to earn rewards for locking in your token for a set period of time. This also helps in protecting the network and gives you the power to vote.

A Speculative Asset

Governance tokens also have value as speculative assets. In addition to being used for governance, they can be traded on exchanges. This means that some holders of these tokens may have no interest in their utility as governance tools and may simply be speculating on the price rise or fall of these coins.

When you purchase a governance token, you’re purchasing some type of “stake” in the project or platform. If the platform grows in number and use cases, the value of your token might rise as well. In addition to voting power, you can also bet for the gains on your investment.

What Are The Pros?

  • The first and most obvious benefit of governance tokens is that they're a new way to raise funds for projects. Instead of going through the traditional venture capital route, which typically limits investors to accredited investors who meet certain net worth requirements, you can use governance tokens to sell your shares in your company directly over the internet. This means anyone with internet access can become an investor, upending traditional economic models.

  • Another benefit of governance tokens is that they're a new way to distribute profits from your project back to investors. In other words, you don't need stockholders meetings or quarterly reports—you just issue dividends based on how much profit was generated by the project during that time period and distribute those dividends via smart contracts!

  • Governance tokens also give voting rights back to ordinary people without requiring them to have any previous experience running companies or investing large sums into startups; many people just want a say in how things run! This makes governance tokens ideal for building community participation around projects as well as helping guide them towards success by having input throughout their lifecycle (rather than just when there are problems).

Conclusion

Governance tokens are an exciting new way for users to influence how their favorite project grows. As the blockchain industry matures, we expect to see more such tokens emerge and shape the future of decentralized networks.

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