Governance Extractable Value (GEV)
Web3 / crypto economics
Governance Extractable Value represents the economic benefits that actors can capture by participating in and influencing protocol governance decisions. This includes the ability to direct protocol revenue streams, modify fee structures, allocate treasury funds, or influence parameter changes that create financial advantages. GEV extends beyond voting power to encompass the practical ability to shape resource allocation and capture resulting profits. Governance token holders with sufficient voting power can potentially extract value by voting for decisions that benefit their positions, such as adjusting fee tiers to favor their trading style or directing treasury resources toward initiatives they profit from. This creates both incentives for productive governance participation and risks of plutocratic capture. Example: MakerDAO governance token holders have extracted value by voting to adjust the stability fee and collateral parameters in ways that benefited large vault operators and token holders while shifting risks to smaller users. Why it matters for crypto economics: GEV incentivizes governance participation but risks creating extractive dynamics where wealthy token holders exploit voting power. Understanding and mitigating GEV is crucial for building fair, sustainable protocols that align incentives with long-term health.
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