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Governance Token
Governance tokens are the main utility tokens in decentralised finance (DeFi) protocols. This type of cryptocurrency grants holders voting rights that can influence decisions concerning the project. In doing so, it decentralises the traditional structure, such as having a core team or a single chairman making decisions. Instead, a project that utilises governance tokens places the control and the decisions back in the hands of its community.
Governance tokens in different projects may vary in rules, structure, and benefits. However, holders typically vote for matters that include the network’s fee structure, a project’s user interface, reward structure, and the governance system itself. Additionally, a governance token can have functions other than voting rights, such as staking and yield farming.
Examples of governance tokens: Maker (MKR), Aave (AAVE), Uniswap (UNI)
Key Takeaway
A governance token is a form of utility token representing governance rights within a blockchain ecosystem, decentralised app (dapp), or decentralised finance (DeFi) protocol.