DeFi
Governance Token
A cryptocurrency token that grants holders voting rights to participate in decisions about a protocol's development, parameters, and treasury management.
Last updated: January 5, 2025
What is a Governance Token?
A governance token is a cryptocurrency that gives holders the right to vote on decisions affecting a blockchain protocol or decentralized application. These tokens enable community-driven governance, allowing users to shape a project’s future.
How Governance Tokens Work
- Acquire tokens: Buy or earn through participation
- Create proposals: Suggest changes to the protocol
- Vote: Token holdings determine voting power
- Implement: Approved proposals are executed
What Governance Controls
- Protocol parameter changes (fees, rates)
- Treasury fund allocation
- New feature implementations
- Partnerships and integrations
- Smart contract upgrades
- Team compensation
Popular Governance Tokens
| Token | Protocol | Function |
|---|---|---|
| UNI | Uniswap | DEX governance |
| AAVE | Aave | Lending protocol |
| COMP | Compound | Lending governance |
| MKR | MakerDAO | Stablecoin system |
| CRV | Curve | DEX governance |
Benefits of Governance Tokens
For Holders
- Influence project direction
- Potential value appreciation
- Community membership
For Protocols
- Decentralized decision-making
- Aligned incentives with users
- Regulatory benefits (decentralization)
Risks and Considerations
- Whale dominance: Large holders control votes
- Voter apathy: Low participation is common
- Speculation: Many buy for price, not governance
- Complexity: Understanding proposals requires expertise
Trading Governance Tokens
Available on major exchanges like Binance, Coinbase, and Kraken.
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