Top 4 DeFi Governance Tokens For Profit & Governance Power

Decentralized finance (DeFi) is changing how we interact with money. It’s creating new ways to lend, borrow, trade, and even create digital currency. A key part of DeFi is “governance tokens.” These tokens are more than just a way to make money; they give holders a say in how a project works. Think of them like shares in a traditional company, but for a blockchain-based system.

For DeFi enthusiasts, governance tokens offer two big things: a chance for profit if the project grows, and the power to shape the project’s future. Holding these tokens means you’re invested in the system’s success and stability. With so many DeFi projects out there, choosing which governance tokens to look at can be tough.

Here we’ve picked four top tokens that offer a good mix of profit potential and important roles in their systems. Let’s dive in, starting with an innovative project that’s shaking up the stablecoin world.

1. Frankencoin Pool Shares (FPS): The Oracle-Free Stablecoin Innovator

What it is: Frankencoin (ZCHF) is a new decentralized stablecoin. It aims to solve big problems that current stablecoins face. For example, many stablecoins rely on central companies or outside “oracles” for price information. Frankencoin is different. It’s an Ethereum-based stablecoin designed to track the value of the Swiss Franc. It also works completely without external oracles.

Why it’s unique: Instead of relying on outside price feeds, Frankencoin uses a special auction system. This system figures out the value of collateral and handles liquidations (when a loan needs to be closed out). This makes Frankencoin super flexible. It can use many different types of collateral, as long as there’s enough of it available in the market.

How FPS works: Frankencoin Pool Shares (FPS) are the governance token for the Frankencoin system. Owning FPS is like owning shares in a bank. FPS holders provide capital to the system’s “reserve pool.” This pool acts like a buffer to absorb risks, similar to a bank’s equity.

Profit Potential: As an FPS holder, you benefit from the system’s growth. The reserve pool collects fees from new Frankencoins being minted. It also gains from liquidation profits. If the system expands and is used more, the value of the reserve pool – and your FPS – can grow. You can also mint new FPS by adding capital to the pool. After 90 days, you can redeem your FPS for funds from the pool. The amount you get back depends on how the pool’s value changed.

Role in System Stability: FPS holders are crucial for Frankencoin’s stability. They carry the “residual risk” of liquidations, just like bank shareholders. This gives them a strong reason to keep the system healthy. Frankencoin uses a unique “veto-based” governance system. Anyone with at least 2% of the total votes can veto proposals. This low barrier means even small holders can team up to stop bad ideas. This structure makes governance very decentralized. It also helps keep the Frankencoin pegged to the Swiss franc, especially during market ups and downs. FPS holders can influence the system’s interest rate policy, which affects how expensive it is to mint new Frankencoins. This helps maintain the peg.

How to get FPS:

• Frankencoin App: Download the app, then deposit/buy FPS on Ethereum or WFPS on Polygon. You can pay with bank wire, credit card, Apple Pay, or Google Pay.
• Frankencoin Website: Go to app.frankencoin.com/equity, connect your wallet, and choose to trade ZCHF, FPS, or WFPS. You can mint new FPS or redeem old ones (after 3 months).
• DFX.swiss: Visit frankencoin.dfx.swiss/, connect your wallet, and choose FPS on ETH or WFPS on Polygon. Payment options are similar to the app.
• Uniswap: You can swap ZCHF for FPS (on Ethereum) or WFPS (on Polygon). Polygon might be cheaper for smaller amounts.

Frankencoin’s unique oracle-free design and veto-based governance make it a fascinating choice for DeFi enthusiasts looking for a fresh approach to stablecoins.

2. Uniswap (UNI): The Decentralized Exchange Powerhouse

What it is: Uniswap is the biggest decentralized exchange (DEX) built on Ethereum. It lets people swap one crypto token for another without needing a central company. It uses something called Automated Market Makers (AMMs) to make trading happen smoothly. Since it launched in 2018, Uniswap has become a cornerstone of the DeFi world.

How UNI works: UNI is Uniswap’s governance token. It was launched in 2020 to give control of the protocol back to its community. UNI holders can vote on important decisions. These include how trading fees are structured, what new features are added, and how the entire system is upgraded.

Profit Potential: As a UNI holder, you can benefit from Uniswap’s continued success. While trading fees currently go to liquidity providers, UNI holders can vote on proposals that might change this in the future, potentially directing some fees to token holders. As Uniswap keeps growing and facilitating massive trading volumes, the value of the UNI token can appreciate.

Role in System Stability: UNI holders play a key role in keeping Uniswap running smoothly and securely. Their votes decide critical operational aspects. This includes making sure the platform can handle lots of trades without issues and that new features are safe. By voting, UNI holders directly help maintain liquidity, security, and user trust in the platform.

3. Aave (AAVE): The Leading Lending Protocol

What it is: Aave is a decentralized lending and borrowing protocol. Launched in 2017, it’s famous for its innovative features, especially “flash loans.” These are special loans that let you borrow without collateral, but you have to pay them back in the same transaction. Aave operates on Ethereum and other blockchains, making it a major player in DeFi lending.

How AAVE works: AAVE is the governance token for the Aave protocol. AAVE holders use their tokens to vote on key proposals. These proposals cover things like setting interest rates, deciding how much collateral is needed for loans, and adding new crypto assets that can be used on the platform.

Profit Potential: AAVE holders can vote on how the protocol’s earnings (from fees) are distributed. This offers a way for holders to potentially receive a share of the protocol’s profits. As Aave continues to expand its reach and attract more users and locked value, the AAVE token’s value can increase.

Role in System Stability: AAVE holders are vital for managing the risks within the lending system. Their governance decisions directly affect the protocol’s stability. For example, setting appropriate interest rates and collateral requirements helps prevent major losses. Voting on new assets ensures that only secure and reliable tokens are added to the platform. By actively participating, AAVE holders help prevent problems like undercollateralized loans or system exploits, ensuring the protocol remains robust.

4. MakerDAO (MKR): The Pioneer of Decentralized Stablecoins

What it is: MakerDAO is a foundational DeFi protocol. It launched in 2014 and is behind Dai, which was one of the first decentralized stablecoins. Dai is designed to stay pegged to the US dollar. Users create Dai by locking up other cryptocurrencies (like ETH) as collateral.

How MKR works: MKR is the governance token for MakerDAO. MKR holders have the power to vote on crucial parameters that keep Dai stable. These include “stability fees” (the cost of borrowing Dai) and what types of collateral can be used. MKR tokens can even be created or burned to help stabilize the system during extreme market conditions.

Profit Potential: MKR holders receive a part of the protocol’s surplus earnings, which come from stability fees. As the MakerDAO ecosystem grows and more Dai is created and used, the value of MKR can increase. However, it’s important to note that MKR holders also take on risks. If the system faces a crisis and needs more capital to cover losses, new MKR might be created, which could dilute the value of existing tokens.

Role in System Stability: MKR holders have a massive responsibility: keeping Dai’s peg to the US dollar. They vote on settings that directly affect this stability, such as liquidation ratios (when collateral gets sold to cover a loan). In tough market times, MKR holders might need to step in to protect the system’s health, possibly through special auctions. This close link between their financial interests and the system’s stability makes MKR governance critical.

Balancing Profit and Responsibility

These four governance tokens show the diverse opportunities in DeFi. Each offers a unique way to participate and potentially profit. Yet, they all come with the important responsibility of helping maintain the system’s stability.

• Frankencoin (FPS) stands out with its innovative, oracle-free design and veto-based governance. It offers a fresh model for stablecoin creation and puts power directly in the hands of users.
• Uniswap (UNI) lets you influence the future of the leading decentralized exchange.
• Aave (AAVE) provides a way to govern a major lending platform, managing risk and rewards.
• MakerDAO (MKR) allows you to help maintain the peg of a pioneering decentralized stablecoin.

For DeFi enthusiasts, investing in these governance tokens isn’t just about potential financial gains. It’s about being part of the decentralized future, influencing how these powerful systems evolve, and helping to build a more transparent and open financial world. Always do your own research before investing in any cryptocurrency.