Governance token

A governance token gives its holders the right to vote on decisions about a crypto protocol, such as fee levels, which assets to support, upgrades to smart contracts and how a treasury is spent. Usually one token equals one vote. Examples include UNI (Uniswap), AAVE (Aave) and ARB (Arbitrum).

Governance tokens are often distributed through airdrops to early users, liquidity mining rewards and allocations to teams and investors. Many trade on exchanges, and their price reflects speculation about the protocol's future as well as any economic rights attached.

In practice, voting rights do not always translate into value. Many governance tokens do not entitle holders to any share of the protocol's revenue, turnout in votes is often low, and large holders such as venture funds can dominate outcomes. Some holders delegate their votes to representatives. Before buying one, check what the token actually entitles you to and how supply is distributed.