How Can Governance Tokens Be Used as Collateral for DeFi Loans and Other Financial Instruments?

Governance tokens can be locked in decentralized lending protocols, such as Aave or Compound, as collateral to borrow other assets like stablecoins or ETH. The amount that can be borrowed is determined by the token's market value and the protocol's loan-to-value (LTV) ratio for that specific asset.

This allows token holders to access liquidity without selling their stake, maintaining their voting power. These tokens can also be used to create sophisticated financial products, like options and futures contracts, based on their future value.