# WTF is a Governance Token? By [Tony Kipkemboi](https://paragraph.com/@tonykipkemboi) · 2022-05-30 --- 💡 _My goal is to break down web3 concepts into layman terms to ease the onboarding process for anyone, especially my African community. Africa is considered mainly as the last frontier and poised to be disrupted by web3. I want to be part of the wave bringing in the change by making web3 concepts easy to digest and understand._ Centralized Governance ---------------------- In the _centralized world_, governance is delegated to a select few individuals whom we trust to represent our values and advocate for change on our behalf. A good example is how we elect officials to a government office. The officials are our delegates. We trust them to represent our views and vote on matters that reflect our choices, but as we all know, this does not always end up the way we want it. Big corporations, most often, end up swaying the votes to fit a different plan. > Governance = Power ![](https://storage.googleapis.com/papyrus_images/3cbff810da957d4bd57bf671c8949884b89d17e345c9f012c1ae485cc8c67c80.jpg) Traditional delegates make decisions that impact the communities they govern Decentralized Governance ------------------------ Enter the _decentralized world_ of [blockchain](https://www.investopedia.com/terms/b/blockchain.asp)! Blockchain protocol operates by code which is the law in the decentralized world. Instructions and consequent behaviors are coded into the protocols, which automatically execute once specific parameters are satisfied. Autonomy is different from centralized governance, where a few individuals decide and execute changes that affect millions of people. An excellent example of decentralized governance where everyone participates in the organization's management is known as a [**Decentralized Autonomous Organization (DAO)**](https://ethereum.org/en/dao/). There are many DAOs focused on almost all aspects of our centralized world; explore existing DAOs on [DAOhaus](https://app.daohaus.club/explore). A sample of the 732 DAOs you can explore on the DAOhaus [website](https://app.daohaus.club/explore) ![](https://storage.googleapis.com/papyrus_images/20cc1d21c82a0d789d748e5c199785211926cf5d649913dccbf0e3ad11911471.png) A selection of the 732 DAOs you can explore on the DAOhaus website Governance Tokens ----------------- There are several models for DAO membership, but I will focus on _Token-Based Membership_. One means you can be a member of a DAO is by trading tokens in a decentralized exchange. We will dive deeper into how governance tokens work in a DAO by using an example of a [Chama](https://en.wikipedia.org/wiki/Chama_\(investment\)#:~:text=A%20Chama%20is%20an%20informal,group%22%20or%20%22body%22.), and no, it’s not the village in Rio Arriba County in New Mexico. Chama is a Swahili word and a common term in East Africa, especially Kenya. It means an informal cooperative society where a group of people pools their financial resources for investment purposes. The Merry Go Round (Rotating Savings and Credit Associations) is the most common. A fixed amount of money is collected from every member periodically, usually monthly, and paid out to one of the members on a rotating schedule. At the end of the payment rotation, the members have the highest risk because those paid early in the schedule have no incentive to keep up with payments. The Rotating Savings and Credit Associations (ROSCA) solves this issue by front-loading the most trustable members in the payment rotation and the least trustable. The ROSCA methodology is better than a random structure but still presents risks. A DAO could solve most of the trust issues in this case. I propose **ChamaDAO** as a solution. You mint a free Chama NFT that grants you access to a token-gated community website and Discord channel to be a member. The NFTs allow you to vote on proposals later replaced by a **$CHAMA**\-an ERC-20 token. In this example, you need a specific amount of **$CHAMA** tokens to be a member and consequently have voting rights in the DAO. As a member, you can trade the Chama token on decentralized exchanges allowing new members to join the DAO. The **$CHAMA is a governance token** representing each member’s stake in ChamaDAO. By distributing control among members, we achieve **on-chain governance**. Each member, as a collective, holds power to change the DAO protocol; foundational code. Members have collective ownership and control over the DAO treasury. Suppose ChamaDAO members propose to buy real estate property in the suburbs of Nairobi, Kenya. In that case, each member has to vote **for** or **against** the proposal, and the result of the voting will determine if the contract will automatically execute the bid. If the majority vote YES, the code will run accordingly to disburse funds to purchase the real estate property from the DAO treasury and vice versa. Takeaways --------- Governance tokens present a new paradigm to community governance, but it is also too early to conclude. Blockchain technology is still very early, and there is a certain likelihood that it will change over the years as more people onboard and governments curve out new policies. Do \*\*your \*\*due diligence before proceeding with the investment in this new ecosystem. --- *Originally published on [Tony Kipkemboi](https://paragraph.com/@tonykipkemboi/wtf-is-a-governance-token)*