Governance Token

A governance token is a crypto asset used to participate in the decision-making of a decentralized project, such as a DAO, DeFi protocol, or blockchain network. Instead of decisions being made only by a company or core team, token holders can vote on proposals that affect how the project works. These proposals may include changing fees, upgrading smart contracts, spending treasury funds, or adjusting rules for users and developers.

Governance tokens matter because they can help distribute control among a project’s community, though the level of decentralization depends on how tokens are allocated and how voting is designed. In many systems, more tokens mean more voting power, similar to owning shares with voting rights in a company, but without necessarily giving legal ownership or a claim on profits. For example, a lending protocol might let governance token holders vote on whether to add a new asset as collateral or change risk parameters.