Thread by @msteis

1/ Early-stage #crypto projects need to stop designing plain vanilla governance #tokens and start adding extra functionalities that make the protocols more valuable if they want to stay relevant. An analysis of top 5 #DeFi governance tokens below: 👇

2/ Compound’s $COMP is a pure governance token with no added functionalities, this has most likely resulted in its low market cap to TVL ratio compared to other projects. While it’s an OG project with a great product, it should do more token design work to reclaim its top place.

3/ Synthetix’s $SNX is used as collateral for minting synthetic assets and accrues fees for trading the assets on the protocols’s exchange. $SNX is a prime example a functional positive feedback loop in token design (more volume = more fees = higher collateral value of $SNX).

4/ Aave’s $AAVE can be staked in the protocol Safety Module to help secure the protocol in exchange for yield funded by fees. In case of a deficit the stakes are slashed to cover it. This token is designed well as $AAVE holders can always opt in/out of potential dilution.

5/ Maker’s $MKR serves as a source of recapitalization when the protocol runs at a deficit, in which case the supply of $MKR is diluted to compensate the deficit. Unlike $AAVE, $MKR holders cannot opt out by choosing not to stake and the price of the token has reflected this. ↘️

6/ Uniswap’s UNI offers the option to earn pro rata trading fees from the Uniswap #DEX, if UNI holders vote to approve this in the future. In this case, governance actually has value because it’s very directly linked to potential future profits.