Decentralization: the Search for a Legal Definition

Abstract

Decentralization is the defining feature of decentralized finance, yet no legally workable definition of the concept exists. Regulatory instrumentsmost notably the MiCA Regulation-invoke decentralization as a threshold criterion for exemption from the regulatory perimeter, without specifying its content. Academic literature has developed sophisticated measurement tools, but these are inherently static and probabilistic, and cannot produce the binary determinations that legal qualification requires. This paper argues that the definitional gap is not a secondary problem: it is the root cause of the persistent uncertainty surrounding the regulatory treatment of decentralized protocols. Without a precise and verifiable definition, it is impossible to determine, in any concrete case, whether a given system qualifies as decentralized-and therefore whether the associated exemptions apply. To fill that gap, the paper proposes a legal definition built on three cumulative and verifiable criteria. The first is the presence of at least three independent decision-making centers-the minimum number that allows collective governance without degenerating into unilateral control or mutual veto. The second is the structural interdependence of participants within a protocol-governed framework, which distinguishes decentralized systems from traditional intermediated relationships. The third is the non-custodial nature of the infrastructure, understood as the structural renunciation of control over users' assets by any single entity. These three criteria are non-mathematical but operationally verifiable. They are cumulative: the absence of any one of them is sufficient to bring a system within the scope of traditional regulatory categories. Together, they provide a minimum normative threshold that is both theoretically grounded and practically applicable by regulatory authorities and courts.