Governance Token

A governance token is a cryptocurrency that grants holders voting rights to propose and decide on changes to a blockchain protocol or decentralized application. Token holders can vote on matters such as protocol upgrades, fee structures, treasury allocation, and parameter adjustments. The voting power is typically proportional to the number of tokens held, creating a decentralized governance model where the community collectively steers the project's direction rather than relying on centralized developers or corporations. Example: Aave governance token (AAVE) allows holders to vote on proposals affecting the Aave lending protocol, including risk parameter changes, new collateral support, and community fund allocation. Why it matters for DeFi: Governance tokens distribute decision-making power across token holders, creating truly decentralized protocols that aren't controlled by any single entity and can evolve based on community consensus.

Category: defi, social community

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