📚If you follow the blockchain industry and the digital currency market, it is unlikely that you have not heard of the term Governance Token, or as it is known in English as Governance Token.
🤔So what is the meaning of this term? What does it refer to?
📚Definition:
Governance tokens are digital currencies that are key to on-chain decision making. Unlike digital assets like Bitcoin that are only used as a means of payment, governance tokens incentivize community participation by giving their holders voting power to determine the future direction of a digital currency project.
Specifically, these tokens give their holders the right to vote on specific decisions made by the network, such as changes to software codes, protocol upgrades, bug fixes, feature implementation, and more. All of this gives governance token holders real power, allowing them to directly influence the development, operation and future direction of the Divi protocol or blockchain network.
The goal of governance tokens is to create a more decentralized system that reduces risk and increases trust for all participants. They also provide an incentive for people to participate in the network and contribute to its growth, which can lead to increased adoption of the protocol itself. This, in turn, will strengthen the network and increase its value over time.
⚙️Mechanism of action:
Governance tokens work by providing their holders with a certain weight in the voting system, depending on the number of tokens they own. Those with more tokens have greater governing power and more influence over how the network operates, meaning their votes are weighted more heavily than those with fewer tokens.
This is in contrast to a democratic system, where everyone gets an equal vote no matter how many assets they own.
Once users submit their votes, a consensus mechanism is used to evaluate the collective opinion of all token holders and decide which changes should be implemented. This means that any proposed changes to the network must receive approval from a certain percentage of token holders before being approved. Votes are collected and executed automatically via smart contracts so that no manipulation by malicious actors can occur.
This system ensures that no single user or entity has too much control over the network and its operations, encouraging a greater level of decentralization.
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