What is Governance Token?
Let's find out Governance Token meaning, definition in crypto, what is Governance Token, and all other detailed facts.
Governance tokens provide the token holders with the decision-making power which allows them to make decisions on new feature proposals and shape the governance system itself.
In many instances, smart contracts automatically apply the changes suggested, evaluated, and voted using governance tokens on the on-chain governance processes. In other instances, the project's maintenance team is tasked with implementing the changes or recruiting someone to do so.
Supporters of governance token-based systems argue that they provide user control, which is consistent with the original cryptocurrency objectives of decentralization and democratization. The organizations that give users decision-making power are usually called decentralized autonomous organizations (DAOs).
Maker (MKR) is a well-known example of a governance token. The holders of this token can vote on decisions relating to the decentralized finance (DeFi) protocol on which the decentralized stablecoin DAI runs.
The primary voting structure in blockchains would probably be on-chain governance which allows embedding the voting participation and decision-making rules in the chain itself. This means that <strong>all proposed changes<\/strong> must be approved and adopted by all <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-node/">nodes/strong>/a> in the blockchain network. <\/p>\n<p>For example, when a developer is working on a project, he has to send out change propositions to the blockchain and all nodes have to either accept or reject these changes. <strong>On-chain governance<\/strong> is considered to be in sync with the concept of decentralization of cryptocurrency. Though this structure puts a lot of power in the hands of miners, which might raise some concerns.<\/p>\n<p>Off-chain is another voting structure in blockchains and it is adopted by major cryptocurrency projects such as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-bitcoin-btc/">Bitcoin/strong>/strong>/a> and <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-ethereum-eth/">Ethereum/strong>/a>. Off-chain governance works in a way that miners, users, <strong>developers<\/strong>, and business supporters participate in the decision-making process.<\/p>\n<p>It is a bit different in the way that there is a development team <em>(consisting of miners, users, developers, and business supporters)<\/em> that decides whether to accept or reject proposed changes to the project. Though there is <strong>no need for validation by all miners and nodes<\/strong> because the changes are not written out in the blockchain’s code. Off-chain limits the level of decentralization in the projects, thus being closer to traditional business governance.<\/p>\n<p>To have a more decentralized voting process, many blockchain projects use <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-governance-token/">governance tokens<\/strong><\/strong><\/a>. Stakeholders purchase and use governance tokens in order to gain voting rights and participate in the project's decision-making process on all levels. Governance tokens are widely used in <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-decentralized-autonomous-organizations-dao/">decentralized autonomous organizations (DAOs)<\/strong><\/a> that <strong>depend on<\/strong> a pool of stakeholders with voting rights rather than having centralized management systems.<\/p>\n<p>Both governance decision-making models have advantages and disadvantages but on-chain governance is definitely the one that is more desired by miners.<\/p>","definition":"the decision-making process within an organization or a project.","status":"published","meta_title":"What is Governance? Definition & Meaning | Crypto Wiki","meta_description":"Governance meaning: Governance - the decision-making process within an organization or project.","meta_keywords":null}" :model="{"id":378,"wikipedia_url":"https:\/\/en.wikipedia.org\/wiki\/Tokenomics#Creation_of_tokens_and_token_types","level":"easy","author_id":1,"created_at":"2023-06-19T06:58:59.000000Z","updated_at":"2023-12-08T04:16:23.000000Z","slug":"what-is-governance-token","title":"What is Governance Token?","section":"G","keyword":"Governance Token","content":"<p><strong>Governance tokens<\/strong> <strong>provide the token holders with the decision-making power<\/strong> which allows them to make decisions on new feature proposals and shape the <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-governance/">governance/strong>/a> system itself.<\/p>\n<p>In many instances, <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contracts<\/strong><\/a> automatically apply <strong>the changes suggested<\/strong>, evaluated, and voted using governance tokens on the <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-on-chain-governance/">on-chain governance<\/strong><\/a> processes. In other instances, the project's maintenance team is tasked with implementing the changes or recruiting someone to do so.<\/p>\n<p>Supporters of governance token-based systems argue that they provide user control, which is consistent with the original cryptocurrency objectives of decentralization and democratization. The organizations that give users decision-making power are usually called <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-decentralized-autonomous-organizations-dao/">decentralized autonomous organizations (DAOs)<\/strong><\/a>.<\/p>\n<p><a href=https://www.bitdegree.org/"https:////en.bitcoinwiki.org//wiki//Amp//Maker/" target=\"_blank\" rel=\"nofollow noindex noopener\"><strong>Maker (MKR)<\/strong><\/a> is a well-known example of a governance token. The holders of this token can vote on decisions relating to the decentralized finance (DeFi) protocol on which the <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-decentralized-stablecoin/">decentralized stablecoin<\/strong><\/a> DAI runs.<\/p>","definition":"a token that can be used to gain the decision-making rights in the voting processes of blockchain projects.","status":"published","meta_title":"What is Governance Token? Definition & Meaning | Crypto Wiki","meta_description":"Governance Token meaning: Governance Token - a token that can be used to gain the decision-making rights in the voting processes of blockchain projects.","meta_keywords":null,"author":{"id":1,"user_id":1,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2023-05-11T07:18:20.000000Z","title":"Editor-In-Chief","slug":"aaron-s-editor-in-chief","description":"<p>Having completed a Master’s degree on Economics, Politics & Culture for the East Asia region, Aaron has written scientific papers with a comparative analysis of the differences between US’ Western and Japan’s Collective forms of capitalism, 1945-2020.<\/p>\n<p>With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.<\/p>\n<p>Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.<\/p>\n<p>Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.<\/p>","user":{"id":1,"first_name":"Aaron","last_name":"S.","email":"aaron@bitdegree.org","email_sanitized":"aaron@bitdegree.org","email_verified_at":"2023-12-01T09:40:20.000000Z","must_verify_email":false,"is_registered_with_wallet":false,"status":"active","country":"LT","last_connected_ip":"88.119.132.125","image_id":2641,"referral_token":"05TMu2NysXOCn525","referred_by":null,"created_at":"2023-05-03T14:30:55.000000Z","updated_at":"2024-01-09T15:22:21.000000Z","full_name":"Aaron S."}}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? 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