Tokens are fundamental to Web3 and the cryptocurrency market. Tokens are divided into two types: fungible and non-fungible. As a result, tokens have a variety of uses. Tokens might be platform, security, utility, or governance tokens. Web3 relies heavily on internet decentralization, and governance tokens play an essential part in this. As a result, the paper will define governance tokens and give a more in-depth examination of the issue.

What is Governance Token?

The “Governance tokens” expression refers to tokens with the capacity to vote in the context of a protocol, game, dApp, or Defi (decentralized finance) solution. Most conventional businesses have a small number of CEOs or a board of directors with complete control. This would imply that all decision-making is outsourced to a single person or a small group. This model is efficient in most circumstances but provides individual investors, consumers, or other stakeholders little power. On-chain governance refers to decentralizing authority through distributing governance tokens to various stakeholders. Everyone gets a say in everything here, from little changes to the regulatory system that supports everything. There appear to be as many token holders as there are ideas when it comes to ideas. In other words, token holders have a wide range of options. Incorporating more modern security technologies into the interest rates of a Defi protocol, the gameplay dynamics of a video game or the cryptocurrency’s ecological system are some generic examples. To summarize, people who possess tokens have a voice in various topics. As a result, how can token holders learn about these ideas and vote on them? In this circumstance, the community of token holders can make proposals. The acronym “DAO” (for “decentralized autonomous organization”) is frequently used to describe this type of organization.

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