If you are a crypto investor, you might experience some issues with the platform regardless of how well-created the platform is. You may also come up with something that you think the developers should do better on the platform. However, not every suggestion is taken into consideration if only to enhance the platform according to the minority’s convenience. That is why as an investor in a decentralized platform, the “right to vote” is essential. This is where the governance token comes into play.
With these in mind, crypto developers created something that will give more income to their users and provide them the key power to elect what will happen on the platform they are investing in: the governance token.
In this article, we will discuss what a governance token is and its vital role in the blockchain ecosystem.
What is a governance token?
The rule of DeFi is to stay away from all possible regulations to remain decentralized. To do that, they must allow users to have the right to suggest ideas for the betterment of the ecosystem. However, not every user should have the power to do so. To keep the market aligned with the developers’ goals on their platform, they keep the suggestions limited to valuable ones, which should come from the governance token holders.
Governance tokens are tokens created by developers to empower holders to influence the development of the system. Governance token holders have the ability to control project choices, such as submitting or voting on new feature requests and even changing the governance structure itself.
More so, token holders have some influence over the platform’s growth. They can modify the user interface, how a DEX distributes fees, what developer funds are used for, and other critical topics.
Though the sole purpose of governance token is voting power, PrivacySwap adds an extra feature in the upcoming PRVG token. We aim to give an additional source of income alongside giving you the power to help us build the best DeFi platform. PRVG token holders can also earn from our farms and pools. Thus, giving you more channels to earn passive income.
How can developers and investors take advantage of it?
The birth of governance tokens opened opportunities to both the platform developers and the investors. Developers are not required to make difficult decisions. They can interact with the community to learn what is wrong with the project, why a specific feature should be changed, and how the team should handle funding and partnerships.
Users can also actively change smart contracts thanks to governance tokens. Users and developers are not forced to branch to a new network if an anonymous group hacks the project’s ledger, steals funds, or engages in any other illegal behavior. They can simply vote to undo the damage, and if a quorum is reached, developers will have full authority to perform the necessary changes.
Read more: What are governance tokens?
More importantly, there is no mining involved with governance tokens, and the decision-making is restricted to people who have invested in a platform. Decentralization is one of the advantages governance token is known for. Though decentralized finance aims to eliminate intermediaries and regulators, it is still necessary to control the platform.
Moreover, governance tokens might broaden the network of the platform, which will allow more partnerships and collaborations to come in. The more minds work for the improvement of the system; the more bright ideas come in. Engagement is also one of the benefits governance tokens could offer. As users enjoy enhancing the platform with their collected ideas, their enjoyment to invest in the platform increases.
Furthermore, the community plays an essential factor in the improvement of the platform. The governance token, therefore, is a great invention that gives us a harmonious relationship between developers and their community.
The downside of having a governance token
On the flip side, let us also address the negative effects of a governance token to give you some ideas. Accountability is one of the disadvantages of a governance token. If something negative happens with the platform after the ideology of the community, it is hard to identify who will be responsible for such a drawdown. Though the ‘majority’ decided the outcome, no one is willing to be part of that majority.
Hoarders or whales of governance tokens are one of the threats to the community. Investors frequently worry that, at some point, the whale will amass a majority of the tokens, submit proposals on their own, and make a selfish decision. Regardless, platform developers must pacify and only accept wise ideas to improve the platform and those that could affect the majority.
To sum up
Governance token is the key to a more democratic ecosystem. Despite being decentralized, we think it is a great idea to have the people decide what should happen on the platform they are investing in. Moreover, no matter how positive a governance token can affect the whole platform, threats are inevitable. In the long run, it is still necessary to remain vigilant and wise to every platform you will be investing in.
As PrivacySwap analyzes a new token’s positive and negative impact, we lean positively towards the advantages and thrive on turning those disadvantages into positive ones.
Nevertheless, we remain righteous and private, and we are keeping ourselves ready for whatever things might affect you, our PRVarmy!
To learn more about our future projects, check the web pages below.