Not all tokens are created equal. Some give you voting power, while others give you access to a variety of services through their ecosystem such as perks, networks, and sometimes, voting power too.

Let’s break down the difference between governance tokens and utility tokens so you know what you're actually holding.

Similarities

  • Both are types of crypto tokens—usually built on Layer 1 or Layer 2 blockchains.

  • Both can be traded, stored in wallets, and used in dApps.

  • Both help power Web3 ecosystems, especially in DeFi and DAOs.

Key Differences

  • Primary purpose:

    • Governance Token: Gives holders voting rights on project decisions (protocol changes, treasury allocation, upgrades).

    • Utility Token: Provides access to features, services, or functions in a specific ecosystem.

  • Influence on project direction:

    • Governance Token: Users can propose or vote on decisions, shaping the future of the protocol.

    • Utility Token: No voting power; used for consuming services (e.g. paying gas, unlocking features).

  • Examples:

    • Governance Tokens: $AAVE (Aave)

    • Utility Tokens: $BNB BNB Chain), $POL (Polygon)

Real-life Analogy

  • A governance token is like a voting share in a company. You get to help decide what the company does.

  • A utility token is like a subway card or app credit. You use it to access services.

Why It Matters

  • Governance tokens are essential for community-driven protocols and DAOs.

  • Utility tokens make networks functional—they’re the fuel behind user actions and smart contracts.

  • Knowing the difference helps you understand the value, risk, and use case of the token you’re investing in.


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