Definition
Governance tokens give holders the right to propose and vote on changes to a DeFi protocol—interest rates, fee structures, collateral requirements, treasury spending, and protocol upgrades. They represent decentralized decision-making, replacing corporate boards with token-holder democracy. Value derives from governance power over protocol revenue and treasury, though many governance tokens are criticized for lacking value accrual mechanisms.
lightbulb Example
Holders of UNI (Uniswap governance token) vote on: fee switch activation (directing protocol revenue to token holders), treasury grants, and cross-chain deployment decisions. Each UNI token represents one vote in the protocol's governance.
verified_user Key Points
- Voting rights over protocol decisions
- Replaces corporate governance with token democracy
- Value linked to protocol revenue and treasury
- Many lack direct value accrual mechanisms