What is DeFi Governance Token?
What is a DeFi governance token? Editor\’s Note: This article is from Blue Fox No
What is a DeFi governance token? Editor’s Note: This article is from Blue Fox Notes (ID: lanhubiji), authorized by Odaily Planet Daily for reprinting.
A “DeFi governance token” is a type of governance token based on decentralized protocols. Unlike traditional cryptocurrencies, it can issue or manage various types of financial instruments, systems, and applications through smart contracts. It also provides a new mechanism to represent governance tokens, allowing users to participate in protocol voting and earn rewards, while also providing yield farming plans for the community.
Over the past few years, DeFi has made significant progress. According to Debank data, the total locked value of DeFi has grown by more than 225% since 2018. According to data from defipulse.com, as of January 13th, the value has increased to around 1 billion, a growth of over 50% since the beginning of the year.
Although there are still security issues on the Ethereum network, many projects in the Ethereum ecosystem still maintain strong momentum. The most notable ones are lending activities on platforms such as MakerDAO and Synthetix, which have also achieved tremendous development.
However, despite the series of risks events in the DeFi field resulting in a significant drop in token value, Ethereum is still one of the main use cases for blockchain technology. For example, after the sharp drop in ETH price in early March this year, the TVL of MakerDAO and Synthetix both experienced a significant increase, rising from nearly 2 billion US dollars to a historical high of 12.48 billion US dollars by the end of July this year.
In addition, due to recent market sell-off caused by liquidity mining, some DeFi projects have stopped using their products, resulting in some users losing funds. For example, Uniswap’s trading fees amounted to $3 million; Aave suffered a loss of 2 million DAI due to a hack attack in the past month; UniswapV2 lost $7 million in a flash loan attack in mid-January; Compound lost more than 1,000 USDT due to a smart contract vulnerability; Uniswap founder Hayden Adams said he is looking for a solution to help those who want to leverage their assets and engage in arbitrage allocate a portion of their investment portfolio to others.
Therefore, with more decentralized exchanges going online, the increasing number of DeFi projects, and the rapid expansion of the DeFi industry, these decentralized protocols may now have more complex use cases. “We need a way to enable protocols to handle any specific needs,” explained Adams. “If people want to connect all their wallets to the protocol, they can create smart contracts.”
However, this may bring some challenges. For example, when people start using the Ethereum network, can smart contracts be used for verification and which protocols have the authority to operate a certain smart contract?
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