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If ‘governance’ does sound similar to ‘government’, well, it’s because they’re in the same category, so to speak. Governance refers to how decisions are made about changes and improvements to any project. Since most cryptocurrencies and protocols are decentralized, governance, if there is anything to govern, is often decentralized too —which means important decisions fall into the same community instead of some centralized leaders.
In decentralized crypto protocols,
By holding these tokens, users can vote on proposals that affect the project’s future, such as changes to the protocol, allocation of funds, or new features. This system allows everyone interested to have a say in the venture’s development and ensures that decisions are made collectively, reflecting the interests of the broader user base. On the other hand, even if governance tokens were made for this especially, they usually can work as any other token, and be bought and sold.
Once released, these tokens become a crucial part of the project’s ecosystem, enabling holders to influence its direction. They’re often tied to a voting system embedded in the project’s smart contracts. Holders of governance tokens can propose changes or vote on existing proposals related to the project’s rules, upgrades, and overall management. Each token generally represents one vote, meaning the more tokens a user holds, the greater their influence.
This decentralized approach ensures that decisions are made democratically rather than being controlled by a central authority. Besides, additional rewards or benefits could come with governance tokens. For instance, they can allow their holders to make loans or long-term staking, provide access to early features, or be an investment themselves by betting on their market price growth.
Several Dapps in Obyte have their own governance tokens, including the decentralized exchange Oswap.io, which has the OSWAP governance token. We can see how a governance token works by taking it as an example. This asset was released in 2023 on a bonding curve to ensure always-available liquidity, with the purpose of offering additional rewards to Oswap.io users.
Through the governance interface on the
By participating in these governance activities, users help shape the development and direction of the OSWAP ecosystem, ensuring it evolves according to the community's collective input. That’s also the case with any other governance token: they’re there to let stakeholders have a say in a decentralized platform.
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