What is a governance token

A governance token is a crypto asset that gives holders voting rights over a protocol's rules, like fee levels, treasury spending, or software upgrades. It matters because it shifts control from a founding team to whoever holds the most tokens, which can mean broader input or just concentrated power in different hands.

Voting usually happens on-chain through a proposal system: holders lock or delegate tokens to vote yes or no, and outcomes execute automatically once a quorum passes. Uniswap's UNI token, for example, let holders vote in 2022 on whether to deploy the protocol to BNB Chain.

The follow-up question worth asking: does holding the token actually change outcomes, or do a few whales and venture funds control most votes? Many governance systems look decentralized on paper but concentrate real power in a small number of large wallets.