In-depth essays · #29 / 50 · On-Chain Finance (DeFi), Stablecoins & RWA
What Governance Tokens (ARB, OP, UNI, MNT, AAVE) Actually Do: How DAOs Run District Treasuries and Upgrades
Inside on-chain voting, delegation, billion-dollar treasuries, and bicameral governance
Many of the tallest buildings in Ethereum City belong to districts whose gas is paid in ETH, yet whose signature tokens—ARB, OP, UNI, AAVE—are classified under Governance (🏛). If you don’t need ARB or OP to pay gas on Arbitrum or OP Mainnet, what powers do those tokens hold?
1. Decentralizing Protocol Control Through DAOs and Delegation
Governance tokens hand control over a protocol’s smart contracts and treasury from the founding company to a Decentralized Autonomous Organization (DAO). Holders either vote directly on proposals or delegate their voting weight to active community stewards, with passed proposals executed via on-chain timelocks.
2. Three Levers of DAO Power: Upgrades, Fee Parameters, and Multi-Billion-Dollar Treasuries
DAOs govern real engineering and capital decisions: approving core protocol upgrades (such as Arbitrum DAO’s votes to adopt BoLD fault proofs and wind down Arbitrum Nova), adjusting protocol fee parameters, and deploying massive ecosystem treasuries—such as Mantle’s (MNT) multi-billion-dollar treasury or Optimism’s Retroactive Public Goods Funding.
3. Why Most Rollups Keep ETH as Gas While Issuing a Separate Governance Token
Because rollups pay Ethereum L1 in ETH to post blobs and settle proofs—and because users already hold ETH—keeping ETH as the gas currency removes onboarding friction while letting the governance token focus on stewardship and incentives (though districts like Mantle and Fraxtal choose to use their own token for gas too).
4. Beyond Simple Coin Voting: Optimism’s Bicameral Experiment
To prevent pure whale dominance, ecosystems like Optimism pair a token-weighted Token House with a one-person-one-badge Citizens’ House, testing how digital cities can govern public goods fairly.
Related districts in the city
Related glossary terms
This essay is an explainer written to help you read the city; it is not investment advice. Facts on this page are as of 2026-10 and may change. If you spot a mistake, please tell us through the contact page.