What is a Governance Token?
A governance token is a type of cryptocurrency that provides holders with voting rights in decentralized organizations, also known as decentralized autonomous organizations (DAOs). These tokens empower investors and community members to influence the development and direction of a project.
Typically, governance tokens are issued during Initial Coin Offerings (ICOs) or as part of other funding mechanisms within the blockchain ecosystem. By holding these tokens, users can participate in decision-making processes, propose changes, and vote on key issues like upgrades, features, or the allocation of funds. This democratizes governance and aligns the interests of token holders with the project's success.
Governance tokens often come with additional benefits, such as staking rewards or a share in the profits generated by the project. Popular examples include Maker (MKR), Compound (COMP), and Uniswap (UNI). As decentralized finance (DeFi) continues to grow, governance tokens have gained significant attention, signifying the shift towards more transparent and community-driven financial systems.