Governance Token

A governance token is a digital asset that lets you vote in a DAO. Holders vote on protocol changes, treasury spending, and strategy. The idea is simple: more stake, more say.

It is not a utility token, which buys access to a service, and it is not a currency token, which you spend. Governance is about control. If a proposal passes, a smart contract can execute it. Compound's COMP, Uniswap's UNI, and Aave's AAVE are the usual examples. The token is worth something because it controls a treasury and fee flow.

Voting power is usually linear in holdings. Own 1% of the supply, get 1% of the votes. That is plutocracy. Large holders dominate. Some DAOs try quadratic voting, where power grows with the square root of tokens, not the raw count. Linear voting is still the default.

People also buy these tokens as a bet that the protocol will grow and keep earning fees. That mix, control plus speculation, is the market. Read a proposal before you treat a governance token like a share. It is a vote, not a legal claim on the company.

Turnout is often low. A small group of large holders can pass a vote. Check quorum rules before you treat the token as control. Many DAOs vote with a token. Holding more tokens usually means more voting weight, which is why large holders can dominate.