What is a Governance Token?
Governance tokens are cryptocurrencies that also have voting rights on a DeFi protocol. It democratizes decisions like software updates, interest rates, fees, airdrops, and issuing more governance tokens.
Users holding governance tokens are members of the protocol’s governance. Users can earn rewards for staking governance tokens.
Examples of governance tokens: Uniswap (UNI), Synthetix (SNX), Compound (COMP), MakerDAO (MKR), and Yearn Finance (YFI).
Most governance tokens are on DeFi projects because DeFi is based on the concept of decentralization.
Governance Tokens FAQ
- Are governance tokens valuable?
- Governance tokens—like any other token—gain or lose price. They can also be used for swaps, staking, deposits, and borrowing.
- Why are governance tokens important?
- Apart from democratizing decision making, the DeFi protocol can generate funds for hiring and management.
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