A decentralization test is an assessment framework or set of criteria used to evaluate the degree to which a blockchain network or decentralized application operates without central control. This evaluation typically considers factors such as the distribution of validators or miners, governance mechanisms, code ownership, and the concentration of token holdings. The objective is to quantify or qualitatively assess the extent of centralized influence versus distributed participation. Passing such a test is critical for many projects to maintain their credibility.
Context
The concept of a decentralization test is a frequent topic in regulatory discussions, as authorities seek to classify digital assets and protocols. Regulators often scrutinize the decentralization level to determine if an asset falls under securities laws or other financial regulations. News articles often report on projects undergoing or failing decentralization assessments, impacting their perceived regulatory risk and market acceptance. The debate around what constitutes sufficient decentralization remains active and contentious.
The proposed regulatory framework fundamentally redefines permissionless finance, forcing protocols to choose between US market access and core decentralization principles.
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