Protocol Fee Switch

Definition ∞ A Protocol Fee Switch is a governance mechanism embedded within a blockchain protocol that permits token holders to activate or adjust fees collected by the protocol. This switch allows for the redirection of a portion of transaction fees or other protocol-generated revenue to a community treasury or directly to token holders. It provides a means for community-driven value distribution. This enables flexible economic models.
Context ∞ Discussions surrounding a protocol fee switch are common in news related to decentralized autonomous organizations (DAOs) and tokenomics, particularly when a protocol reaches a stage of significant usage. Activating such a switch can have substantial implications for a protocol’s revenue generation, token value proposition, and the incentives for token holders. Community voting typically determines the timing and parameters of its activation.