Governance tokens are usually used in community-based defi protocols; for example, Uniswap, Compound, and sushi launched their governance tokens allowing the community to purpose or vote for every change related to platforms. Different token economics models may render different consequences to the protocols.
Take UNI and Compound for example:
UNI
Uni is mainly used to serve as governance, incentives, and protocol transferring fees. Initially, Uni was distributed to early users and the community which renders it becoming more community-based protocols.
Initial Setting:
1% of Uni for proposals
4% of Uni for voting FOR
With this model, liquidity providers who receive UNI as incentives will not make deteriorated decisions to Uniswap since their funds are still in the liquidity pools. These mechanisms enforce the liquidity providers’ interests to align with Uniswap protocols. However, there is no encouragement to motivate Uniswap holders to purchase more even though there is a 2% inflation rate. Thus, the price of UNI may encounter a price ceiling. Here is another thing need to take care, most of UNI is staked in the protocols and it will be released in the 4 years and the Uniswap team have not specified how these new tokens will be distributed, or to whom.
However, there is a governance token called MIMO having a great model to encourage community users to keep purchasing; at the same time, the value of MIMO will increase given the deflation model.
Compound
Comp is mainly used to incentivise the lending provider, liquidity providers and make holders governance the protocols. Mostly, compound wants to make an environment to encourage users to establish great lending and borrowing defi protocol with great liquidity; thus, it allocates 50% of comp to lending sides.
Compound used a high APY strategy to make users want to purchase compound and stake in the pool. Moreover, Compound has a total supply limited to prevent it from over-inflating.
MIMO
MIMO is equipped with high APY and has two important designs to keep MIMO valuable. Firstly, MIMO has a deflation model to control the total supply. Although the community can distribute or mint new MIMO to increase the liquidity, the model will automatically balance it.
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Secondly, the voting power of holding MIMO will decrease as well. This mechanism has holders or users purchase more MIMO yearly to maintain the same voting power. Based on these two designs, MIMO has better models to support the values.
Overall, governance token is the important token economics and nowadays every protocol tries its best to ensure that the token is able to assist users’ profits will be aligned with the protocol itself.
MiMo Official Channels:
Telegram Group: https://t.me/mimodefi
Twitter: https://twitter.com/mimodefi
Facebook: https://fb.me/mimodefi
