What Is a “Governance Token” and Is It Typically a Utility or a Security?

A governance token grants holders the right to vote on proposals that affect the future development and parameters of a decentralized protocol or DAO. They function as a utility by enabling participation in the network's operation.

However, if the token is marketed primarily as an investment with an expectation of profit based on the efforts of a central team, it may still be classified as a security under the Howey Test. The classification is often context-dependent and subject to regulatory interpretation.