What is Governance?
Governance in crypto is a mechanism that allows for different parties related to decentralized organizations to make changes. There are two forms of governance in the crypto space, on-chain governance and off-chain governance.
On-Chain Governance
On-chain governance is the most democratic in nature and is most commonly issued through governance tokens/coins. This form of governance is called direct governance and is the most transparent. These tokens/coins, similar to shares in a company, give you voting power regarding any changes to the protocol. In these DAOs (Decentralised Autonomous Organizations) every vote counts and there are no intermediaries. Some changes may include fee structures, the burning of tokens, and yields.
Off-Chain Governance
Off-chain governance is more similar to the traditional sense of governance and is more centralised. This model promotes a balance between the users, developers, validators/miners, and business organizations. Although this structure can sideline many of the mainstream users on major decisions it gives much more flexibility in things such as a hard fork. This makes it a popular option for protocols to start off with; then transferring governance to a DAO.
Why Governance in Crypto Matters
Governance is an extremely important part of every blockchain/protocol as it directly influences its ability to adapt and upgrade itself. Proposals and changes have a real impact on users and are often monetary. It is due to many of these changes having monetary impacts that these governance tokens warrant a value.
