Governance Token
A token conferring voting rights over a protocol's parameters, upgrades, and treasury.
Governance tokens give holders the right to vote on proposals that change a DeFi protocol — adjusting fee rates, adding new collateral types, allocating treasury funds, or upgrading smart contracts. Major examples include UNI (Uniswap), AAVE, COMP (Compound), and CRV (Curve).
Governance is often dominated by large holders (whales and venture capital funds) rather than the community at large, raising concerns about plutocracy. Innovations like quadratic voting and conviction voting attempt to address this imbalance.
The market value of a governance token reflects expectations about the protocol's future fee revenue, the value of treasury assets, and the strategic value of controlling protocol parameters — not just current cash flows.