{"id":37903,"date":"2023-07-17T16:00:00","date_gmt":"2023-07-17T13:00:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37903"},"modified":"2025-08-29T23:14:48","modified_gmt":"2025-08-29T20:14:48","slug":"governance-tokens-vs-utility-tokens-whats-the-difference","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/governance-tokens-vs-utility-tokens-whats-the-difference\/","title":{"rendered":"Governance tokens vs utility tokens: what\u2019s the difference?"},"content":{"rendered":"<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Key points<\/h2>\n<ul class=\"wp-block-list\">\n<li>Governance tokens are akin to shares within blockchain ecosystems. They confer voting rights on key questions of how decentralised protocols evolve.<\/li>\n<li>They are not only instruments of direct democracy; governance tokens can be used across many other use cases.<\/li>\n<li>Utility tokens serve to interact with services or to access specific features and privileges within ecosystems. Such assets cannot be used for voting within a <a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-dao-decentralised-autonomous-organisation\">DAO<\/a>.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What is a governance token?<\/h2>\n<p>A governance token is a digital asset whose holders can vote on key matters of a blockchain project\u2019s development as part of a decentralised autonomous organisation.<\/p>\n<p>A DAO may decide on:<\/p>\n<ul class=\"wp-block-list\">\n<li>setting various protocol fees and how they are distributed among ecosystem participants;<\/li>\n<li>changes to the user interface;<\/li>\n<li>creating and funding a project development treasury;<\/li>\n<li>developer grants, and so on.<\/li>\n<\/ul>\n<p>Many cryptoassets in the DeFi ecosystem are governance tokens. Their use cases extend beyond voting. Such coins can usually be deployed in <a href=\"https:\/\/forklog.com\/en\/news\/what-is-staking-and-how-to-make-money-from-it\">staking<\/a>, lending protocols and <a href=\"https:\/\/forklog.com\/en\/news\/what-is-yield-farming\">yield farming<\/a>.\u00a0<\/p>\n<p>There are rankings of governance tokens ordered by market capitalisation.<\/p>\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/gov_tokens-1024x425.png\" alt=\"gov_tokens\" class=\"wp-image-211690\" width=\"820\" height=\"340\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/gov_tokens-1024x425.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/gov_tokens-300x124.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/gov_tokens-768x318.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/gov_tokens.png 1389w\" sizes=\"auto, (max-width: 820px) 100vw, 820px\" \/><figcaption class=\"wp-element-caption\">Data: <a href=\"https:\/\/coinmarketcap.com\/view\/governance\/\">CoinMarketCap<\/a>.<\/figcaption><\/figure>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What is a utility token?<\/h2>\n<p>Utility tokens are cryptoassets designed for specific use cases within particular ecosystems. They are also called native or utilitarian tokens.\u00a0<\/p>\n<p>Such assets also mimic Ethereum\u2019s gas model. For example, MATIC, the utility token of the <a href=\"https:\/\/forklog.com\/en\/news\/what-is-polygon-matic\">Polygon<\/a> ecosystem, is used to pay transaction fees.<\/p>\n<p>Basic Attention Token (BAT) allows users of the Brave browser to be rewarded for their attention to ads and also serves as a means of payment for advertisers.<\/p>\n<p>In some cases a utility token is required to access a platform; more often it is optional, enabling specific features or privileges.\u00a0<\/p>\n<p>For example, BNB holders receive discounts on trading fees when using the Binance centralised exchange, as well as the opportunity to support new projects on the Launchpad platform.\u00a0<\/p>\n<p>The same asset is a core element of BNB Chain. In addition, it is used to pay transaction fees for operations in the DeFi ecosystem.<\/p>\n<p>LINK, the native token of <a href=\"https:\/\/forklog.com\/en\/news\/what-is-chainlink-link\">Chainlink<\/a>, is used mainly to pay node operators whose oracles power the decentralised network.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How do governance tokens differ from utility tokens?<\/h2>\n<p>Governance tokens resemble ordinary shares in traditional finance, which allow votes on key issues at public companies.\u00a0<\/p>\n<p>Holders of such blockchain assets propose, accept or reject initiatives within a DAO.<\/p>\n<p>In short, governance tokens are a core element of decentralised systems\u2014an instrument of direct democracy.\u00a0<\/p>\n<p>By contrast, utility tokens do not confer voting rights\u2014only the ability to use specific features in defined use cases. Most such assets are, in effect, stripped-down versions of governance tokens.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"323\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-1024x323.png\" alt=\"V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_\" class=\"wp-image-211691\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-1024x323.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-300x95.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-768x243.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-1536x485.png 1536w, https:\/\/forklog.com\/wp-content\/uploads\/V-chem-glavnye-otlichiya-governance-tokenov-ot-utility-tokenov_-2048x647.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What are the pros and cons of governance and utility tokens?<\/h2>\n<p>The main advantages of governance tokens:<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Decentralisation<\/strong>. Only with such assets can DeFi applications truly be called decentralised. Without governance tokens, platforms would be faceless sets of smart contracts controlled solely by developers and founders.<\/li>\n<li><strong>Scope for collaboration<\/strong>. Voting underpins constructive debate about a project\u2019s future. Discussion, in turn, creates incentives for collaboration among ecosystem participants.\u00a0<\/li>\n<li><strong>Engagement<\/strong>. Governance tokens give holders levers to influence a project\u2019s future, motivating them to take part in votes.<\/li>\n<\/ul>\n<p>There are also pitfalls:<\/p>\n<ul class=\"wp-block-list\">\n<li>Elements of direct democracy do not guarantee that a project will develop in the right direction. Some DAO participants are guided primarily by self-interest. Among them may be large holders capable of strongly influencing voting outcomes.\u00a0<\/li>\n<li>If a community decision proves suboptimal and ultimately harms the project, the majority is to blame\u2014meaning no specific DAO participant bears responsibility.<\/li>\n<li>Every decentralised autonomous organisation has large holders of governance tokens. They may single-handedly put forward proposals and secure outcomes favourable to themselves, which can conflict with the interests of others. Hence the distribution mechanism for governance tokens must be well designed.<\/li>\n<li>Because of legal uncertainty, many projects\u2014and their tokens\u2014may attract regulatory scrutiny.<\/li>\n<\/ul>\n<p>Holding utility tokens can also entail significant risks. During the \u201c<a href=\"https:\/\/forklog.com\/en\/news\/what-is-an-ico-and-can-you-profit-from-it\">ICO<\/a> mania\u201d of 2017\u20132018, many hollow tokens were created with no fundamental value or prospects. Such assets were often issued by fraudsters to obtain funds from novice crypto investors.<\/p>\n<p>There were exceptions\u2014in those years the token sales of what are now the largest centralised exchange, Binance, and the leading non-custodial platform, Uniswap, took place.\u00a0<\/p>\n<p>The value and prospects of utility tokens depend on the quality of the underlying project and the relevance of the use case in which they are employed. If a platform lacks demand, the asset tends to fall in price.\u00a0<\/p>\n<p>Utility tokens contribute little to mass adoption of cryptocurrencies, since their real use is largely limited to specific platforms and use cases. Consequently, only a few such assets have preserved value over long periods.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A guide to the similarities and differences between utility and governance tokens.<\/p>\n","protected":false},"author":1,"featured_media":37904,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"1","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[2113],"tags":[596],"class_list":["post-37903","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptorium","tag-tokens"],"aioseo_notices":[],"amp_enabled":true,"views":"111","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=37903"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37903\/revisions"}],"predecessor-version":[{"id":37905,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37903\/revisions\/37905"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/37904"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=37903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=37903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=37903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}