Governance Token

Understanding Governance Tokens

Governance tokens are specifically designed tokens that empower holders to actively participate in shaping the future of a protocol.

These tokens allow individuals to influence various decisions related to the project, including proposing new features, making decisions on proposals, and even modifying the governance system itself.

Governance Tokens and On-Chain Governance

Typically, governance tokens leverage on-chain governance mechanisms accessed through these tokens.

The changes proposed by token holders are often implemented automatically through smart contracts.

However, in some cases, the project team may be responsible for implementing the approved changes or hiring someone to carry out the required tasks.

Empowering User Control and Decentralization

Advocates of governance token systems believe that they enable user control, aligning with the core principles of decentralization and democratization in the cryptocurrency realm.

Organizations that allow users to govern the development of their systems are commonly referred to as decentralized autonomous organizations (DAOs).