Glossary Term

Governance

In crypto, governance refers to the decision-making process of a project and the entities or individuals who hold power to shape its development. It determines how rules, upgrades, and resource allocations are decided within a blockchain ecosystem.

Beginner

General

Crypto Terminology

Governance: what is it?

Governance in cryptocurrencies is the framework that defines how decisions are made in a project. These decisions can involve protocol upgrades, funding allocation, parameter changes (such as fees or block size), or the introduction of new features. Governance structures aim to provide transparency and fairness by clarifying who has the authority to make changes and how those changes are implemented.

There are generally two main forms of governance:

On-chain governance, where token holders or validators directly vote on proposals using the blockchain itself.
Off-chain governance, where discussions and decisions happen outside the blockchain (forums, foundations, developer groups) before being implemented technically.

Context on Solana

In the Solana ecosystem, governance plays a central role in shaping DeFi protocols, DAOs (Decentralized Autonomous Organizations), and dApps. Many Solana-based projects implement token-based governance, where holding or staking governance tokens gives users the right to vote on proposals. Examples include voting on treasury spending, new protocol features, or community incentive programs.

While Solana’s base protocol is more centrally guided by the Solana Foundation and core developers, the majority of ecosystem governance happens at the protocol level (e.g., a DeFi lending platform where token holders decide on collateral ratios). This hybrid model allows flexibility while keeping the base blockchain stable and efficient.

Why It Matters

For beginners, understanding governance is essential because it shows who controls the direction of a project. A transparent governance process builds trust, while a centralized or opaque process may limit community influence. In the Solana ecosystem, governance directly impacts how protocols evolve, how funds are allocated, and how sustainable communities become.

Key Takeaways

Governance defines how crypto projects make decisions.
It can be on-chain (direct voting) or off-chain (community discussions).
On Solana, governance is widely used in DAOs and DeFi platforms.
Token holders often shape project rules and treasury allocations.

Examples

1
A Solana lending platform lets governance token holders vote on which assets can be added as collateral.
2
A decentralized exchange (DEX) built on Solana allows token holders to decide on fee structures.
3
A DAO on Solana creates proposals for funding community initiatives, with members voting through token-weighted ballots.

Common Use Cases

Protocol upgrades: Governance can approve or reject changes to smart contracts or project features.

Treasury management: Communities decide how project funds or reserves are spent.

Incentive design: Governance votes on rewards for stakers, liquidity providers, or developers.

Pro Tips

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Check if governance is token-weighted, meaning large holders may have disproportionate influence.

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Participate in governance through official channels such as forums, DAOs, or project dashboards.

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Learn the difference between binding votes (enforced on-chain) and advisory votes (off-chain discussions).

Frequently Asked Questions

Can small holders influence governance?

Yes, but influence depends on token distribution; larger holders usually have more weight.

Is governance transparent?

Good governance systems publish proposals and results, but transparency varies by project.

Can governance fail?

Yes, poor participation or dominance by large holders can weaken community trust and decision-making.

What is governance in crypto?

Governance is the system of decision-making in blockchain projects, involving rules, upgrades, and resource allocation.

Does Solana itself use governance?

The Solana protocol is managed mainly by the Foundation and developers, but governance is common in ecosystem projects.

What’s the difference between on-chain and off-chain governance?

On-chain uses blockchain voting, while off-chain relies on discussions and decisions outside the chain.

What is a governance token?

A token that gives holders voting rights on proposals in a crypto project.

What is a DAO in governance?

A Decentralized Autonomous Organization where members use tokens to vote on collective decisions.

What kind of decisions are made through governance?

Protocol upgrades, treasury spending, incentive structures, and ecosystem partnerships.

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