Benefits of Holding Governance Tokens in DeFi and DAOs

• by Eamon Ledgerwood
• Nov 19, 2025
• 1 Comments

Benefits of Holding Governance Tokens in DeFi and DAOs

When you hold a governance token, you’re not just owning a piece of crypto-you’re holding a vote. In decentralized finance (DeFi) and DAOs, these tokens give you real power to shape how a protocol runs. No board of directors. No CEO making unilateral calls. Instead, decisions like fee changes, treasury spending, or new feature launches are put to a vote-and the more tokens you hold, the more weight your vote carries. This isn’t theory. It’s happening right now on Ethereum, Arbitrum, and other chains, with real money and real impact.

Direct Influence Over Protocol Decisions

Think of governance tokens as digital shareholder votes, but without the paperwork. If you own UNI from Uniswap, AAVE from Aave, or MKR from MakerDAO, you can propose changes or vote on them. These aren’t symbolic gestures. In March 2022, Uniswap’s community voted to allocate $160 million from its treasury to fund developer grants and community growth. That’s not a rumor-it’s on-chain. Every vote, every proposal, every outcome is recorded publicly. You can check it yourself on Etherscan or the protocol’s governance dashboard.

What can you vote on? Pretty much anything that affects the protocol’s future: adjusting transaction fees, changing how rewards are distributed, deciding which new assets to list, approving partnerships, or even updating the core smart contracts. These aren’t minor tweaks. They’re structural decisions that can make or break a project’s adoption and sustainability.

Incentives Aligned With the Network’s Success

Centralized companies often prioritize short-term profits over long-term health. Their employees don’t own the company, so their incentives are tied to stock options or bonuses-not the product’s actual success. Governance tokens fix that. When you hold tokens, your financial gain is directly tied to how well the protocol performs. If the platform grows, usage increases, and demand for the token rises, your holdings become more valuable.

This alignment creates a powerful feedback loop. You’re not just a user-you’re a stakeholder. You’ll be more likely to use the platform, recommend it to others, and even help fix bugs or suggest improvements because your wallet is on the line. It turns passive users into active builders.

Economic Rewards Beyond Price Appreciation

Holding governance tokens isn’t just about waiting for the price to go up. Many protocols let you stake your tokens to earn additional rewards. For example, staking AAVE not only gives you voting power but also grants you a share of protocol fees. Some DAOs even pay out in the native token for participating in governance discussions or reviewing proposals.

Plus, governance tokens often unlock access to liquidity mining programs. On Uniswap, users who provide liquidity and hold UNI can earn extra token rewards. These programs are designed to bootstrap adoption-rewarding early supporters and encouraging long-term commitment. It’s not just a token; it’s a participation bonus.

Transparency and Auditability

With traditional companies, you get quarterly reports and press releases. With governance tokens, you get the blockchain. Every proposal, every vote, every result is publicly visible. You can trace who voted, how much they voted with, and when the decision was executed. There’s no backroom deal. No hidden agenda. Everything is open-source and immutable.

This transparency builds trust. If a DAO wants to spend $5 million on marketing, you can see the proposal, debate it in forums, vote on it, and then watch the funds move on-chain. If something goes wrong, you can audit the entire history. No centralized entity can erase or manipulate that record.

Community Ownership Over Centralized Control

Before governance tokens, crypto projects were often controlled by a small team of founders or venture capitalists. Even if the code was open-source, the direction of the project was decided behind closed doors. Governance tokens flipped that model. Now, the community owns the protocol. The founders might still lead development, but they can’t unilaterally change the rules.

This shift matters. It prevents rug pulls. It reduces the risk of a single entity taking over. And it makes the protocol more resilient. If a team abandons a project, the community can still fund new developers and keep it alive. Look at MakerDAO: even after its founders stepped back, the community kept the protocol running, updated it, and expanded its use cases-all through token-based voting.

Challenges and Real-World Limitations

But it’s not perfect. The biggest issue? Voter turnout. Most DAOs see participation rates below 5%. Why? Voting can be confusing. You need a wallet, some ETH for gas fees, and the time to read through dense technical proposals. Many people just don’t bother.

That creates a problem: plutocracy. The people with the most tokens have the most power. A few large holders-sometimes whales or venture funds-can swing votes even if the majority disagrees. This undermines the ideal of true decentralization. Some protocols are trying to fix this. Compound introduced time-locked voting: if you want to vote, you have to hold your tokens for at least four days. That discourages short-term speculators from gaming the system.

Another challenge is complexity. Not everyone understands smart contracts or treasury management. A proposal to change the collateral ratio for a lending protocol might as well be written in Latin if you’re not familiar with DeFi mechanics. That’s why some DAOs now have working groups-volunteers who translate proposals into plain language and explain the trade-offs.

How to Get Started

If you want to start using governance tokens, here’s how:

1. Buy the token on a major exchange like Coinbase, Kraken, or Uniswap.
2. Transfer it to a non-custodial wallet like MetaMask or Coinbase Wallet.
3. Visit the protocol’s governance portal (e.g., governance.uniswap.org or vote.aave.com).
4. Connect your wallet and check for active proposals.
5. Read the summary (many have community-written explainers), then vote.

You don’t need to be a coder. You don’t need to own millions of tokens. Even holding 100 UNI gives you a vote. And your vote counts. You might not sway a major decision alone, but if 1,000 others like you vote the same way, you change the outcome.

The Future of Governance Tokens

The next wave of governance is already here. Delegated voting lets you assign your vote to someone else-like a trusted community member or expert-without giving up your tokens. Reputation-based systems are being tested, where influence isn’t just based on token count, but on past participation, contribution, or community trust.

Some projects are even integrating governance tokens into real-world use cases. Imagine earning governance tokens for using a decentralized ride-share app, or holding them as loyalty points in a decentralized online store. The lines between ownership, usage, and reward are blurring.

Regulators are watching closely. In 2025, the U.S. SEC signaled that tokens marketed as investment opportunities with promises of profit may be classified as securities. That could force some projects to rethink how they structure and promote their governance tokens. But the core idea-community control-isn’t going away. It’s too powerful.

Governance tokens aren’t magic. They won’t fix bad code or prevent scams. But they do give ordinary people a real voice in the digital economy. And that’s something no centralized bank, tech giant, or government has ever offered before.