What is Governance Token?

A governance token gives holders the right to vote on protocol decisions - parameter changes, treasury spending, upgrades, and strategic direction. It's decentralized decision-making.

Why it matters: Governance tokens distribute power from founders to community. They also create demand beyond speculation - holding tokens gives you a voice in the project's future.

What governance tokens can decide:

• Protocol parameters: Fee structures, interest rates, collateral ratios
• Treasury allocation: How project funds are spent
• Upgrades: New features, integrations, changes
• Partnerships: Which projects to collaborate with
• Token economics: Supply changes, burn rates, rewards

Reality check: Many governance tokens have concentrated ownership, making voting power an illusion. Check actual participation rates and whale holdings.

How governance voting works in practice: A token holder submits a proposal on-chain or through a platform like Snapshot. The community discusses it during a review period before a formal vote opens. Voting power is typically proportional to token holdings, meaning one token equals one vote. Some protocols use delegation, allowing holders to assign their voting power to trusted representatives without giving up token ownership. Common governance decisions include adjusting protocol fees, approving new asset listings, funding grants from the treasury, and authorizing smart contract upgrades. Participation tends to be low, often below 10% of token supply, so a small group of dedicated holders can wield outsized influence.