The role of DAOs in DeFi

Decentralized finance grew alongside the rise of popular for-profit DAOs which now own and operate decentralized financial (DeFi) services. As previously mentioned, many DAOs involve their own tokens with built-in incentives to keep their service running. Many smart contract platforms sold these tokens in initial coin offerings (ICOs) to get their service off the ground. Token holders became stakeholders in the future of these platforms. And, DAOs generally fit the bill for any time a smart contract platform needs to adjust its token mechanics or platform rules.

Token holders vote on issues controlling these DAOs and how their services run. Much like the shareholder of a company, token holders want the protocol to run smoothly and create demand for the token. So naturally, it’s in token holders best interest to implement features that draws users to the platform or accrues additional value for the token.

For example, adding a coin burn mechanism reduces the existing supply of tokens. Or maybe, platforms add support for new tokens, decided by token holders. MakerDAO and Kyber Network are two primary examples of DeFi protocol making use of this type of token incentivized governance.

As the world of DeFi grows and protocols become more complex, it’s very likely that DAOs will become more significant. Carefully managing large protocols becomes a priority for the entire community.

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