Understanding the Role of Governance Tokens in DeFi

The world of Decentralised Finance have been transforming the financial system around and it will continue to get better and better as time goes on. The Decentralised Finance have been transforming the way we carried out financial services and I am so sure it will just continue to get better and better. One of the things that really foster innovation of this Decentralised finance is what I called the governance tokens which is really playing a very vital role in the Decentralised protocols.

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As many of us, we must have been hearing about governance tokens for a long time and that is what I will be talking about. Governance tokens as the name implies are actually a type of cryptocurrency that gives access to holders of those tokens to have voting power in an ecosystem. They help in what I call the traditional equity and those governance tokens help to make sure that there is a legal entity that helps to provide the direction for protocol.

Talking about the roles of governance tokens in the DeFi, they are actually many and one of them is Decentralised Decision Making. In fact one of the things of the Decentralised Finance is the Decentralised nature that it expresses and governance tokens helps to empower it much more better. There is this Decentralisation benefit that is due to governance tokens because it helps to actually empower the community much more for the protocol governance.

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The other benefits that governance tokens offer is the aspect of protocol upgrades and also the aspect of development. Come to think of it, I have come to discover that people who hold those set of governance tokens can go a long way to determine the changes and decisions making in that ecosystem. With those decisions taken, we can expect more new features, and more smart contract parameters much more.

I will also like to say that governance tokens helps to promote something called democratisation of finance. We can make use of the community to help in the financial decision making most especially making use of the institutional affiliation. It also talks about the aspect of the increase transparency. With those governance tokens, decisions make use of that transparent and the on chain mechanisms or help in the accountability and helps to reduce manipulation.