Governance tokens, which give holders the right to influence the direction of decentralized finance projects, have been among the biggest hits in the Ethereum ecosystem this year.
Indeed, at the time of writing the combined market cap of Ethereum’s top 8 DeFi governance token projects had risen to over $4.3 billion USD. For comparison, bitcoin’s market cap is currently $169 billion, ether’s is $26 billion, XRP’s is $6 billion, and bitcoin cash’s is $4 billion.
This reality suggests these governance tokens are becoming increasingly popular in the cryptoeconomy for giving users a direct stake in managing DeFi platforms. However, it remains true that many folks in the space still don’t understand these tokens and what they do. To highlight Ethereum’s reigning and rising governance tokens, let’s survey the largest ones as well as two newcomers, Curve’s CRV and mStable’s MTA.
Market cap: $1.68 billion
Current total supply: 10,000,000
Current price: $168
COMP, the governance token of the money market protocol Compound, is presently the largest governance token per market cap. The token gives its community of holders the ability to vote on key changes to Compound. COMP can also be delegated to others for voting.
In blooming as a decentralized lending and borrowing hub, Compound was already very popular in DeFi before its COMP token went live in June 2020. Since then, COMP liquidity mining, which allows users of Compound to earn COMP proportional to their activities, has helped propel Compound to being the largest DeFi dApp in general with nearly $700 million worth of assets locked in its protocol right now.
Market cap: $669.6 million
Current total supply: 194,006,803
Current price: $3.45
SNX is the native asset of Synthetix, a decentralized platform for issuing Ethereum-based synthetic assets that can track real-world assets like currencies, commodities, and more. In December 2019, the Synthetix team announced a transition to decentralized governance, wherein a few major Synthetix stakeholders would initially control the project’s treasury ahead of SNX token holders eventually taking over the treasury and protocol.
SNX already has utility beyond this governance aspect, as users can lock SNX up as collateral to create Synths like sUSD, i.e. synthetic USD. To this end, SNX is not strictly a governance token, but it is evolving toward this additional model.
Market cap: $447.4 million
Current total supply: 1,005,577
Current price: $444.93
MKR, the governance token of the popular DeFi borrowing and stablecoin project MakerDAO, was the DeFi ecosystem’s original governance token. Since then, the asset has inspired multiple other projects toward decentralized governance and has served as the early bar against which these other projects measure their tokens against.
MKR is used to vote on important changes to the Maker protocol, like the addition of new collateral types. MKR doesn’t have in-built vote delegation functionality (like COMP) for now, but plans are in motion to bring delegation to the token. Compared to many peer projects, MKR is also noticeably deflationary, as MKR fees paid to the Maker protocol get burned.
Market cap: $385.5 million
Current total supply: 1,299,999,942
Current price: $0.30
LEND is the collateral and governance token of Aave, a rising decentralized borrowing and lending protocol on Ethereum. Aave is akin to Compound in what it offers to DeFi users, though Aave provides unique features like flash loans and credit delegation, i.e. the ability to let others borrow against your collateral.
When staked, LEND confer voting rights and also earn their holders fees generated by the Aave protocol. At the same time, these staked LEND serve as a defense for Aave in the case of mass liquidation episodes.
Market cap: $333.8 million
Current total supply: 210,552,294
Current price: $1.59
KNC is the native token of the Kyber Network, an on-chain liquidity aggregator protocol that lets users make decentralized trades. In July 2020, the Kyber team rolled out the Katalyst upgrade and KyberDAO, which allow users to stake KNC in order to earn voting fee rewards and and govern the Kyber Network. Notably, Kyber is among Ethereum’s most popular decentralized exchanges as things stand.
Market cap: $294 million
Current total supply: 35,870,000
Current price: $8.20
Balancer is an Ethereum-based automated market maker (AMM) that’s somewhat similar to Uniswap. In contrast to Uniswap’s two-token liquidity pools, though, Balancer offers the ability to open up pools composed of up to 8 different ERC20 tokens. BAL is the governance token of Balancer and lets holders decide the direction of the protocol. The newly launched project is also offering a liquidity mining campaign, in which Balancer users are rewarded with BAL on a running basis.
Market cap: $286 million
Current total supply: 1,030,000,000
Current price: $0.28
bZx is a decentralized lending and margin trading protocol, and its team is behind the Fulcrum and Torque platforms. This summer, protocol’s builders unveiled the v3 token model of BZRX, the governance token of bZx. This token can be staked to earn protocol fees, as well as Balancer fees and BAL rewards for serving as a liquidity provider in an underlying Balancer pool.
Market cap: $187.3 million
Current total supply: 100,312,319
Current price: $444.93
Launched in April 2020, UMA is the governance token of the UMA protocol, which can be used to create a wide range of synthetic, “priceless” assets. These assets are priceless because they minimize oracle use in not relying on an on-chain price feed. Accordingly, UMA tokens give holders the right to help decide important protocol parameters, supported asset types, and more. Moreover, in the case of price request disputes UMA holders step in to fulfill requests through the UMA protocol’s Data Verification Mechanism.
Curve, a decentralized exchange protocol for efficient stablecoin trades, is currently the 8th-largest DeFi project according to tracker site DeFi Pulse. In June 2020, the Curve team announced plans to launch CRV, a governance token, and CurveDAO, an Aragon-based organization that would be used to decentralize Curve’s governance going forward. CRV, which will be rewarded (even retroactively) to Curve users, will have an initial supply of 1 billion. The token’s inflationary schedule will eventually get the supply to just over 3 billion tokens. Reportedly, CRV will be released to the public by the end of summer 2020, at which point price discovery will begin.
MTA is the governance token of mStable, a meta-stablecoin protocol that lets users create mASSETS, e.g mUSD, using underlying baskets of stablecoins like USDC, USDT, and Dai. MTA had its initial offering on July 18th on the Gnosis-backed Mesa exchange protocol, which is focused on superior liquidity in relying ring trades. 2.66 million MTA were released during the sale, the proceeds of which were delivered to the mStable project’s associated Aragon DAO. Notably, MTA can be staked for earning platform fees and interest.
With the rise of governance tokens like the ones above will come factions, and from these factions will come protocol politicians, who will approach the newfound politics of these DeFi platforms in different ways.
For example, some protocol politicos for lending platforms will be more permissive toward adding a wide variety of supported collateral types, including more centralized assets like USDC, WBTC, and so forth. Conversely, other politicos will be more conservative and lean toward keeping these DeFi platforms as non-reliant on centralized solutions as possible.
This is just a taste of what’s to come, too; the potential of this political arena is now just beginning to take shape, just as the wider DeFi sector is.