What is governance in Web3?
Governance is a commonly used word in Web3 today. In short, it refers to the responsibilities of members, investors, or users to care for the digital community they are a part of. Decentralized governance models on permissionless networks like Ethereum, Oasis, and others are crucial for aligning the interests of everyone involved and redefining how social organizations can be built and run in the future.
This course gives an overview of what governance means in Web3 and how it works.
What are governance tokens?
Governance tokens give holders the right to vote on issues that govern the development and operations of a blockchain project. It is a method by which projects distribute decision-making power to their communities. This decentralized governance model helps align the interests of token holders with those of the project.
In most cases, one token equals one vote. These tokens are designed to connect communities together to ensure that blockchain projects can develop healthily. One of the first governance tokens was issued by MakerDAO, an Ethereum-based DAO.
Each project sets different rules on how their governance tokens work. Some governance tokens only vote on a specific set of governance issues, while others vote on most things. Some governance tokens may earn financial dividends, while others may not.
Advantages and Disadvantages of Governance
Governance tokens can eliminate the mismatch of interests often found in centralized governance, and they can be very effective for aligning the interests of users and the organization itself. Governance tokens also often build active, collaborative and close-knit communities.
The biggest challenge of government tokens is the so-called whale problem. Whales are people who own a large percentage of a particular crypto. If a crypto project’s biggest whales own a significant portion of its total governance token supply, they could sway the voting process in their favor.
Other Uses for Voting with Blockchains
Old electronic voting systems have large security gaps. Electronic voting originated around the 1960s when the first voting card systems were launched. But today, the vulnerabilities of these systems are well known. Whether through paper ballots or digital ballots, normal voting can be improved.
Using decentralized voting networks on a blockchain can help. Just like votes are submitted and tallied for DAO decisions, the same mechanisms can be used to collect votes for real-life decisions outside of a Web3 organization like a DAO.
Blockchain voting process is not only transparent and democratic, but also makes it more accessible among participants. A better electronic voting system is modern and beneficial for the general population.
Governance tokens and blockchain voting are still new to crypto, but the innovation will continue. Solving the problems of Web3 governance is important to creating fairer open systems for social and community management.