One thing to note is that governance tokens don’t provide unrestricted control over the ledger. That is because one of the fundamental rules of the blockchain is that no one controls it. These tokens can only be used to vote for changing the blockchain’s parameters, which users can’t change otherwise.
Usually, governance tokens aren’t mined the same way normal cryptocurrencies are mined. Instead, founders can distribute these tokens based on fund allocations or with users’ normal returns. This is done to ensure that people don’t associate monetary value with governance tokens.
Scenarios where governance tokens are helpful
If a project has a code module that can give c level contact list access to malicious users or if there are certain protocols in the project that are now defunct, you need a way to remove them from the blockchain. This can be done via voting on the protocols through governance tokens. With enough votes, you can modify those protocols or remove them altogether. In that case, governance tokens are extremely helpful.
You can even use the governance tokens to decide how to manage governance tokens themselves, i.e., you can vote on topics such as how many tokens to distribute and who can qualify for them.
Governance tokens in the news
Many DeFi companies like generation z marketing Aave, Curve, Compound, and Balancer have started generating governance tokens. There have also been discussions about service nervous systems that can divide governance tokens to create a permissionless and decentralized blockchain.
All these things are there to ensure that the full control of the blockchain stays in its users’ hands, and the only way to change things is through autonomous voting. The whole concept of blockchain is that people should have the power over their own money, and governance tokens are a crucial way of establishing trust in the decision-making process.
Issues with governance tokens
All this doesn’t mean that governance andorra business directory tokens don’t have issues. There are certain risks associated with the concept of governance tokens. For example, governance tokens, when traded, can cause crypto crashes leaving investors in dismay.
That’s what happened with Sushi Swap. Investors tried to trade their tokens for small profits, making the cryptocurrency highly volatile. And when the founder started trading their tokens, the price of the whole currency came crashing down.