Governance Token

A governance token is a cryptocurrency that enables holders to participate in the decision-making process related to the functioning, governance, and other activities within a decentralized finance (DeFi) ecosystem through voting. These tokens are a significant component of decentralized autonomous organizations (DAOs) and are used to make proposals and influence the stability, security, and future of decentralized projects.

Token holders can also decide the budget of products, allocation of the budget, distribution of rewards, transaction fees, and other design and UI-related changes. They fall under the category of utility tokens, but not every utility token has governance rights. Therefore, every governance token is a utility token, but not every utility token is a governance token.