Decentralization is the key innovation enabled by blockchain technology, and can have significant technological, economic, and legal implications for web3 companies and protocols. Decentralization remains hard to grasp and define despite its importance. In the web3 spirit of collaboration and open source, Latham has partnered with a16z Crypto to develop two matrices to help enumerate the components of decentralization.
The matrices articulate not only the various categories and factors of decentralization but also suggest indicators of various thresholds of decentralization with respect to each factor. Additionally, as decentralization must be assessed differently for different types of protocols and projects, we provide two different matrices for the following:
- tokenized blockchain protocols, such as layer 1 and layer 2 blockchains; and
- tokenized smart contract protocols deployed to blockchains.
We hope this resource helps innovators, legal practitioners, investors, and policymakers to better understand and define decentralization. And we hope it can serve as a tool for builders to understand how to better pursue decentralization and self-assess their progress. This is intended to serve as a comprehensive starting point for defining decentralization, but we welcome feedback from all industry participants as both technology and standards evolve.