Glossary · G
Governance Token
A token that grants holders the right to participate in protocol governance — voting on proposals, delegating voting power, and shaping the protocol's future. Major governance tokens include UNI (Uniswap), AAVE (Aave), MKR (MakerDAO), COMP (Compound), and CRV (Curve). Governance tokens may also have fee-sharing rights, staking rewards, or buyback mechanisms depending on the protocol's governance design.
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How Governance Token works in practice
A governance token confers votes over a protocol's parameters, treasury and upgrades. It is a claim on decisions. Whether it is also a claim on revenue is itself one of those decisions, and it can be made and unmade by vote.
Worked example
Holders vote on whether to enable a fee switch routing 20% of trading fees to stakers. Until that vote passes and executes, the token earns nothing regardless of how much revenue the protocol generates.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Valuing a governance token on protocol revenue it does not receive. Check whether the fee switch is live now, who holds enough votes to change it, and whether large holders have any interest in doing so.
Governance Token: common questions
- What is Governance Token?
- A token that grants holders the right to participate in protocol governance — voting on proposals, delegating voting power, and shaping the protocol's future. Major governance tokens include UNI (Uniswap), AAVE (Aave), MKR (MakerDAO), COMP (Compound), and CRV (Curve). Governance tokens may also have fee-sharing rights, staking rewards, or buyback mechanisms depending on the protocol's governance design.
- How does Governance Token work in practice?
- A governance token confers votes over a protocol's parameters, treasury and upgrades. It is a claim on decisions. Whether it is also a claim on revenue is itself one of those decisions, and it can be made and unmade by vote.
- Can you give an example of Governance Token?
- Holders vote on whether to enable a fee switch routing 20% of trading fees to stakers. Until that vote passes and executes, the token earns nothing regardless of how much revenue the protocol generates.
- What do people get wrong about Governance Token?
- Valuing a governance token on protocol revenue it does not receive. Check whether the fee switch is live now, who holds enough votes to change it, and whether large holders have any interest in doing so.