Jack Ryan, Chief Investment Officer of Tradecraft Capital and author of the book “Encrypted Asset Investment in the Age of Autonomy”.
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With the increased attention to the price of cryptocurrency, in the absence of a central authority, the decision-making power of the blockchain will be left to users. Governance Token, as an encrypted asset, not only provides investors with the possibility of cryptocurrency returns, but also allows people to write the rules of a specific blockchain.
Early adopters of the new DeFi service can buy (or earn) governance tokens, which provide holders with voting rights on how to maintain, upgrade, and manage the blockchain. One Token, one voting right.
As these systems become more and more integrated into daily business, these tokens with monetary value also have the ability to shape the future of the blockchain.
Bitcoin can be said to put blockchain technology on the map of the general public. Of course, without blockchain technology, Bitcoin would not exist.
In addition, the Memes that created millionaires overnight, Dogecoin, and CryptoKitties, a digital trading card that sold for more than US$100,000, appeared in the market as an NFT.
On the surface, these blockchain-based projects sound ridiculous, and even confuse the general public, and make financial institutions laugh at them as speculative money-making pranks.
However, if you can throw a superficial joke and focus on the development of important cryptocurrency fields, everything is not so simple and magical.
The world of blockchain is a community of developers and investors who are building a solid and sustainable infrastructure, which will support a new kind of economy: a decentralized economy. Part of the decentralized economy is the establishment of an open and decentralized financial system (DeFi).
DeFi is young and is evolving in a productive way (and of course it is still an area that confuses many people). There are too many field experiments going on and it is impossible to reliably predict what will happen next. However, the growing market determination shows that the fundamental innovations of the blockchain and the new encryption technology and software innovations that may be possible in the future will inevitably continue to exist.
Although people’s attention to cryptocurrencies is mainly focused on their huge price fluctuations and speculation, a larger game is still unfolding. The decentralization and automation that cryptocurrencies allow is a revolution because they allow value to be created and transferred in new ways. When artificial intelligence (AI), the Internet of Things, robotics, and cryptocurrency merge together, innovation clusters create possibilities for new things, such as autonomous operation or running their own business processes.
The rules that challenge traditional new systems are now being written, usually by users who hold “governance tokens”, which enables them to have a say in the development direction of these systems. For those far-sighted companies and individuals engaged in cryptographic work, these often overlooked tokens have a special value-they have a say in the next development.
# About the value of voting rights
The encryption ecosystem architecture has two important concepts: decentralization and on-chain governance.
Let’s start with decentralization. Blockchain is an autonomous point-to-point ledger technology used to manage and record transactions. Blockchain is built for accuracy, transparency, and autonomy, and it eliminates the need for third parties or fee intermediaries. Authentication is built into the software, and users don’t need to deal with gateway administrators or fees, and they don’t need to request permission to use this public infrastructure. Unauthorized access to the public blockchain has fundamentally changed our architecture for designing financial transactions and financial system infrastructure. Because the blockchain is immutable, which means that you cannot edit or change records, this means that the trust of a third party is no longer required. And this kind of innovation itself reduces costs and friction.
Then there is on-chain governance, which mediates how to set and modify the rules governing activities on a particular blockchain. This can be used to build a Decentralized Autonomous Organization (DAO) or DeFi system. Our current financial system relies on trusted intermediaries, such as banks, who make agreements and rules to protect the institutions themselves and consumers. In a decentralized, blockchain-based financial system, the process of writing rules is usually done through the use of on-chain governance. Early adopters of the new DeFi service can purchase (or earn) governance tokens, which provide holders with voting rights on how to maintain, upgrade, and manage the blockchain. One Token, one voting right.
These tokens often play a role after the establishment of the encrypted network. Most blockchain projects start with the so-called “off-chain governance”, which means from developers exchanging emails about how to change the code to founders passing the comments passed in GitHub, which is for open source software projects The main software source code library. Those who make cryptocurrencies will formulate a set of rules. After they are set, many people continue to establish on-chain governance and use governance tokens.
Once encrypted block technology becomes mainstream, governance tokens will become very valuable. Compound Finance is an example of this. This is an early well-known DeFi project. In this project, users get a governance token. When the system runs on its main network, the value of the token rises sharply. On-chain governance is more formal and democratic than off-chain governance. It allows each governance token holder to vote on the decisions and choices that guide a specific blockchain ecosystem. Some ecosystems may vote on the features to be released. It can be the formulation of monetary policy or the reserve ratio of loan collateral. Or, it may be what type of consensus mechanism the blockchain uses, which affects the performance, resource usage, and security of the blockchain. The on-chain governance structure is designed to maintain transparency, because everyone can see the calculation of proposals and voting results, and avoid human-led behind-the-scenes transactions.
Although the main focus of crypto investors so far has been on appreciation, as crypto investment matures, governance tokens will likely become more important and valuable.
The reason is simple: as the value of an encrypted network increases, the value of the rights to manage it also increases. Since Token holders must hold encrypted assets in order to continue to vote for the benefits of a particular ecosystem, investors will want to obtain and hold more Tokens so that they can continue to participate in governance. As long as the ecosystem makes the right decision and provides a good and competitive service, Token may accumulate more value over time.
We have similar things in the traditional financial system. If traditional equity provides cash flow rights or claims after paying all business expenses, then governance tokens are similar to equity to some extent, because they give the right to control the encrypted network and its financial direction.
# Govern the rights of Token
As long as you have a mobile phone, you can be a potential cryptocurrency investor or user. But this is not as simple as opening a Coinbase account. Smart investors will take time to understand the basic principles of cryptocurrency. Because they have the right to help shape the future of cryptocurrencies, as crypto investment becomes more and more complex, governance of Token will likely become more and more important.
We are entering a new world, where more and more people do more and more things with less and less money. Part of the reason may be technology, because innovation is the core of the economy. The world is becoming more and more automated. As this trend continues, we will need mechanisms to manage the boundaries between humans and machines. In DeFi, the use of on-chain governance systems and governance tokens looks very promising.
Currently, encryption technology is still in adolescence. Although memecoin may be considered a “joke”? But we should not confuse nonsense with genuine innovation. What I want to tell the reader is that the only encrypted asset that gives the holder clear rights is the governance token.
Of course, governance Token has also been pointed out that there are some risks, such as too many proposals, too technical proposals, or have nothing to do with ordinary users. People vote by imitating those “outstanding people”. At least, in the future development, governance tokens should not attach any monetary benefits or incentives.
Therefore, I invite the public to participate and witness, not just speculation. Governance Token gives investors not only shares, but also a voice. As we have seen in history, voting and voting rights are powerful things.
Original Author｜Jack Ryan
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/harvard-business-review-thoughts-on-blockchain-governance-rules-value-of-voting-rights-and-token-rights/
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