What Are Governance Tokens

There is a concept in crypto called governance tokens. These kinds of assets can be used not only for investing and trading but also to influence the entire project development. In this article, we discuss the use of governance tokens in more detail and give examples of the most popular ones.

What Is a Governance Token?

So, a governance token is a type of cryptocurrency that gives its holders the right to make decisions about a project’ future. With these assets, users can vote on platform rule changes, technology updates, or the funds distribution. This approach means that all stakeholders can influence the project’s prospects, maintaining decentralization.

How Do Governance Tokens Work?

The more tokens holders use to vote on proposals, the greater their influence on the outcome. When a proposal submission occurs, token holders have to vote within a certain period. This can be done on DeFi platforms—on governance sections with active and pending proposals. To cast a vote, asset owners need to connect their crypto wallet and specify the number of tokens they want to vote with. The confirmation means their tokens are entered into the proposal's smart contract and are considered for the final decision.

List of Most Well-known Governance Tokens

To better understand the governance tokens, we have compiled a list of the most popular ones:

• Uniswap (UNI). UNI token holders have the right to vote on protocol changes, such as the fee structure, within the same-named exchange.

• MakerDAO (MKR). This is a token for a platform that produces DAI stablecoins. With MKR, its holders influence decisions on collateral types, stability fees, and risk management protocols.

• Aave (AAVE). Aave is a lending and borrowing protocol, and token holders vote on proposals regarding collateral types, interest rates, and new features introduction.

• Compound (COMP). This is another token for a lending platform, whose holders vote on changes to asset listings, interest rate models, and various risk parameters.

• SushiSwap (SUSHI). This is a token for the same-named exchange and automated market making (AMM); its holders vote on platform upgrades and liquidity incentives.

• Curve Finance (CRV). A token for a stablecoin trading exchange, whose owners take part in decisions on commission structures and protocol updates.

• Yearn Finance (YFI). The YFI token is designed for a yield farming platform, and its owners use it to influence decisions on fund allocation and strategic directions in the protocol's work.

Governance tokens are a way to influence decisions in a project, increasing the likelihood of changes being made in your favor. If you have already tried trading cryptocurrencies, voting with governance tokens is the next step in learning crypto.

Have you already tried voting with governance tokens? Tell us about your experience in the comments!