A governance token is a type of cryptocurrency that gives owners the right to vote on decisions that impact the underlying protocol, platform, or system. This token serves as a tool for decentralized governance over the blockchain protocol.
These tokens empower their holders with a say in the direction and development of the platform’s policies, parameters, and upgrades. Essentially, token holders have the opportunity to influence decisions concerning the project’s roadmap and updates.
It’s important to note that holding a governance token doesn’t provide ownership or equity in the traditional sense. The holder doesn’t have a claim on a project’s profits or assets, and it doesn’t represent shares of a company. Instead, they confer rights to influence the development and operations of the platform.
A few examples of popular governance tokens include Uniswap’s UNI token, Compound’s COMP token, and MakerDAO’s MKR token. These are all decentralized finance (DeFi) platforms where token holders can propose, debate, and implement changes to the system.