What is a governance token?

A governance token is a crypto token that gives its holder a vote in how a protocol is run. Holders can back or reject proposals such as software upgrades, fee changes or how a shared treasury is spent. Most governance tokens are used to run a DAO, the member-run organization behind many DeFi apps.

How does DAO voting with governance tokens work?

In a token-based DAO, owning the token is what gives you access to voting. According to ethereum.org, this kind of membership is usually permissionless, since the tokens can often be bought on decentralized exchanges or earned by doing things like providing liquidity.

Voting power generally scales with the number of tokens. Many DAOs also let holders delegate their votes to another address, such as an active community member who follows proposals closely. Delegating hands over voting power, not ownership of the tokens.

Once a vote passes, the change may be carried out automatically by smart contracts, sometimes after a waiting period.

How does UNI governance work?

Uniswap is one of the best-documented examples. As of October 2026, its official docs describe three stages:

1. A request for comment posted on the governance forum for at least 7 days.
2. A 5-day temperature check on Snapshot, an offchain polling tool, which needs at least 10 million UNI voting yes to move forward.
3. A binding onchain vote with a 2-day delay, a voting period of about 7 days, and a 2-day timelock before the change can run.

To submit the onchain proposal, an address needs 1 million UNI delegated to it. For the vote to pass, at least 40 million UNI must vote in favor, which is about 4% of all UNI. UNI holders must delegate their votes, even to themselves, before they can vote at all.

What are some governance token examples?

Beyond UNI, ethereum.org points to MakerDAO's MKR token as a case where anyone could buy voting power over a protocol's future. It also mentions ENS, whose holders can delegate votes to community members who put themselves forward.

Not every DAO uses tradable tokens. Some, such as DXdao, use reputation that cannot be bought or transferred, so no one can simply purchase influence.

What are the risks of governance tokens?

The main concern is concentration. If a few large holders, sometimes called whales, control a big share of the supply, they can decide votes. Turnout is often low, which makes it easier for a small group to reach quorum.

A governance token also does not automatically entitle holders to profits or dividends. What it actually grants depends on each protocol's rules, which can change through the same voting process.