Governance tokens confer holders the power to influence decisions concerning the core protocol, product or feature roadmap, hiring and staffing, and changes to governance parameters. All software needs mechanisms for being updated or patched. Unforeseen vulnerabilities might be found. In addition, the community could find that poor token design or unforeseen events have left elements of the codebase irrelevant, nonfunctional, or even illegal. Finally, there are usually small parameters in a codebase that must be updated over time. Tokens with governance rights confer holders some degree of influence over these issues, typically through a voting process, though this influence can vary remarkably.
‘Blockchain governance’ typically refers to decisions about the codebase itself, for example, whether Bitcoin would accept larger blocks or implement Segregated Witness, but it has also expanded to include influence over how the host platform is managed and marketed. With Bitcoin andEthereum, the entities performing such functions (Bitcoin Foundation and Ethereum Foundation) have no formal relationship to BTC or ETH holders. Recent governance mechanisms, such as with QTUM, have sought to formalize such entities and the relationship between them and token holders.
Another common form of project governance is through token-based treasury management. Projects like DASH and Decred grant token holders the ability to allocate funds from a project treasury to contractors who perform various project related services, such as development, PR, research, outreach, and legal representation.