A governance token gives holders the right to vote on proposals that affect a protocol's development, parameter changes, treasury spending, and strategic direction. It is the primary mechanism for decentralized decision-making in DAOs (Decentralized Autonomous Organizations).
Governance tokens derive value from the voting power they confer over protocol resources and revenue. Protocols with significant treasury assets or fee revenue make their governance tokens more valuable, as holders control real economic resources.
The distribution of governance tokens directly impacts decentralization. If a small number of insiders hold a majority of governance tokens, the protocol may be decentralized in name only. This is why community allocations and broad distribution are important for credible governance.