# Trading tokens before contract maturity

### Trading tokens before contract maturity

Contract default and other times tokens are burned as penalty

TAKAs are staked in a smart contract for the duration of the insurance coverage. When staked, these tokens cannot be transferred or traded. As long as the tokens remain staked, coverage is in force. 

In case a member decides he/she wants to break the insurance contract and terminate coverage ahead of the maturity of the contract, a penalty will be imposed; a portion of the staked tokens will be burned and the remaining released to the member. 

The rationale for this is that premature termination of the contract and unstaking of the tokens introduces risk to the DAO fund that needs to be corrected. Burning a portion of the tokens will de-risk the fund and result in restoring targeted risk levels.

### Token as governance vote

In addition to the financial benefits tied to the TAKA token, the token also has governance rights. Token ownership entitles holders to participate in DAO governance through voting. Governance processes are described in the <mark style="color:blue;">DAO Governance manual and can be found here</mark>.&#x20;

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