Governance tokens are cryptocurrency assets that give their holders the right to participate in the governance of decentralized projects, protocols, or organizations. These tokens allow users to vote on changes to the blockchain platform’s operations, proposed updates, treasury fund distribution, and other key decisions.

Characteristics and functions:

Voting: Token holders can propose or vote on changes to the project’s operations.
Proportionality: The more tokens a user holds, the greater their influence on decision-making.
Treasury participation: Governance tokens may provide access to control over the distribution of resources and project funds.
Long-term impact: Token holders play a role in determining the long-term development strategy of the project.

Examples of governance tokens:

Uniswap (UNI): Governance for the decentralized exchange, including decisions on fund distribution and protocol development.
Compound (COMP): Interaction with the lending protocol, proposing improvements and adjusting interest rates.
MakerDAO (MKR): Voting on changes to the rules within the system that supports the stable cryptocurrency DAI.

Governance tokens can increase accountability for the project and promote decentralization, but they can also be susceptible to concentration of power if a significant number of tokens are held by a few parties.