// GLOSSARY -- BLOCKCHAIN & CRYPTO FUNDAMENTALS

What is Governance Token?

1 min read Updated

A governance token grants holders voting rights in a protocol's decision-making process — enabling decentralized governance over parameters, treasury allocation, and protocol upgrades.

WHY IT MATTERS

Governance tokens are how DeFi protocols decentralize control. Instead of a company making decisions, token holders vote on proposals: fee changes, new features, treasury spending, and protocol upgrades.

Major governance tokens include UNI (Uniswap), AAVE (Aave), COMP (Compound), and ARB (Arbitrum). Voting power is typically proportional to holdings, with delegation enabling passive holders to assign their votes to active participants.

Governance tokens create alignment: those with the most at stake (largest holdings) have the most influence over decisions. The counterargument: this creates plutocratic governance where wealthy holders dominate.

FREQUENTLY ASKED QUESTIONS

Do governance tokens have value?
Value comes from voting power over treasuries and fee switches. Protocols sitting on billions in treasury make their governance tokens valuable. Pure governance with no economic rights is harder to value.
What is vote delegation?
Assigning your voting power to another address. You keep your tokens but let a delegate vote on your behalf. This improves participation by enabling specialized governance representatives.
Can governance be attacked?
Yes. Flash loan governance attacks (borrowing tokens to pass proposals) have occurred. Protections include voting delays, quorum requirements, and time-locked execution.

FURTHER READING

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