What are Governance Tokens?
January 04, 2023 | Cryptex Contributors
Governance tokens will become more and more vital as the cryptocurrency world continues to develop. Governance tokens are a new kind of cryptocurrency that is quickly gaining in popularity. But what are they, and why do they matter?
In this blog post, we will explore the answers to these questions. We will also discuss how governance tokens work and what you can do with them. So if you're curious about governance tokens, read on!
What are governance tokens in crypto?
Governance tokens are cryptocurrencies with a special purpose: to play an important role in the overall ecosystem of a cryptocurrency network. Most other types of cryptocurrencies have more limited functions or purposes, but governance tokens confer voting and other governance rights within a particular dApp, protocol, DeFi solution, or game.
Governance tokens tend to be issued by a specific organization or community, and are designed to give these organizations or communities control over the governance of their network. This can include matters such as managing treasury, creating new updates for the network, proposing new governance models, implementing governance decisions, and more.
Some governance tokens also confer certain rights that allow holders to participate in the governance process without having to make any major financial contributions. These types of governance tokens can include basic voting rights on specific issues, but may also extend to participation in active projects or proposals within the ecosystem.
Given all of this, it is clear why many experts believe that governance tokens will become increasingly important as the world of crypto continues to embrace global adoption for the years to come.
How do you get a governance token?
Users who have made significant contributions to the community or have demonstrated loyalty are usually the ones who get awarded governance tokens on a frequent basis. In other cases, users can acquire governance tokens on an exchange or through a token sale.
There is a range of governance tokens available on different crypto exchanges, including some of the most popular centralized platforms such as Binance or Coinbase.
Which tokens are governance tokens?
Most governance tokens are related to the DeFi industry in some capacity or another. Community governance is a vital function that helps DeFi stay decentralized. The majority of protocols in the DeFi space run on Ethereum's blockchain network. Here are some examples of the most known governance tokens to date:
Cryptex Finance’s governance token is known as CTX, an ERC20 powering the Cryptex Protocol. CTX holders are able to initiate a proposal by posting on the Cryptex Finance Forum page. A poll then takes place and if there is a majority of “Yes'' votes, a snapshot occurs. If the snapshot is successful, an on-chain vote then takes place with holders of CTX known as Crypt-Keeprs.
Compound (COMP) is a utility token that runs on the Ethereum network. It is a protocol for lending and borrowing, and COMP holders can vote for changes to the network via the compound governance dashboard.
Maker is a decentralized platform built on Ethereum that is responsible for creating the DAI stablecoin. MKR holders can vote on proposed changes to the Maker DAO network inside the Maker Voting Dashboard. DAI has been praised for being one of the few stablecoins that are intended to be truly decentralized, and it has been integrated into some games, wallets, and DeFi apps.
Yearn.finance (YFI) is a DeFi protocol hosted on Ethereum that offers lending, borrowing, and trading services. The platform has different products like Earn, Zap, Vaults, and APY. Users can earn YFI tokens by locking up crypto funds in smart contracts that run on Curve and Balance (other DeFi trading platforms). This allows users to participate in what’s known as yield farming.
Yield farming lets users earn interest from DeFi protocols by locking up their funds. The more value users lock inside the protocol, the greater rewards they can get in return.
Aave is a DeFi platform that enables users to borrow, lend, and earn interest on crypto. It operates on a series of smart contracts that manage the platform’s financial operations. Users can borrow funds and pay interest, or lock up crypto to earn interest. AAVE is the network’s native token, and it gives holders voting rights for the governance of the Aave protocol.
What can you do with governance tokens?
Governance tokens are a powerful tool that can be used to influence the governance and development of dApps, games, protocols, or DeFi solutions. Some governance tokens also have other utility functions, such as enabling holders to access exclusive services.
Ultimately, governance tokens enable users to have greater control over their assets in the crypto space. Whether you're a user who wants more voting power within an organization or interested in staking your holdings, governance tokens can provide unique benefits and opportunities for crypto enthusiasts of all stripes.
Conclusion
In a decentralized Web3 world, a code of law still needs to be established. By incentivizing users to voice their opinions and vote, governance tokens are slowly becoming the backbone of blockchain governance. These tokens enable holders to have a direct stake in the future of the blockchain, allowing them to participate in the governance of cryptocurrency projects.
Governance tokens can be used to influence the development of projects and protocols, as well as to gain access to exclusive services and potential returns. Ultimately, governance tokens are a powerful tool for users to take greater control of their crypto holdings.
To get involved in Cryptex Finance governance, our CTX governance token is available on Coinbase, Gemini, Huobi, Uniswap, and Sushiswap. Holders of CTX are able to vote on various proposals within the Cryptex ecosystem which can be found here.
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