Clear DefinitionsGovernance Token
1 min read
Pronunciation
[gah‑vər‑nuhns to‑ken]
Analogy
A governance token is like a shareholder vote—owning tokens lets you propose and decide on changes to the project.
Definition
Key Points Intro
Governance tokens decentralize decision‑making via:
Key Points
Voting power: Weight proportional to token holdings.
Proposals: Holders submit and vote on protocol changes.
On‑chain governance: Executes approved upgrades automatically.
Economic stake: Aligns incentives between users and protocol.
Example
Compound’s COMP token holders vote on interest rate models and distribution policies through on‑chain proposals.
Technical Deep Dive
Governance contracts implement token‑weighted voting: proposals are structs with parameters and voting deadlines. Token balances are snapshotted at proposal creation. Voting functions (`castVote`) update tallies. Upon quorum and majority, a timelock contract executes changes via `execute()` calls to core modules.
Security Warning
Token concentration can lead to plutocracy; monitor distribution to prevent governance capture.
Caveat
Low voter turnout can delegate de facto control to a small active group.
