What are governance tokens and how do they work?

With governance tokens, one can create and vote on governance proposals. Therefore, governance token holders can influence decisions concerning the project such as proposing or deciding on new features or even changing the governance system itself.

What is on-chain governance?

Distributing control among stakeholders in this way is called “on-chain governance.” The powers denoted by the governance tokens may include traditional management roles and the authority to change the project’s protocol, i.e. its foundation in code.

What is a compound token?

The COMP token is the equivalent of one vote on Compound. The tokens can also be delegated to others to vote on your behalf. In 2020, Compound gave up control of the network's admin key and the project is now entirely governed by its tokenholders without any other governance methods.

What is a utility token?

In short, a utility token can be used to exercise certain rights or to access products/services offered by a protocol. The utility conferred by governance tokens is the right to influence a protocol’s direction. There are many examples of this in DeFi protocols, such as Uniswap (UNI) and Compound (COMP).