How Does the Degree of Decentralization Affect the Regulatory Classification of a Derivative?

Regulators often scrutinize the degree of decentralization when classifying a crypto asset and its derivatives. Highly decentralized assets are less likely to be classified as securities, which have stricter regulatory requirements.

If the underlying asset is deemed a security due to centralization, its derivatives would also fall under securities laws, impacting their offering, trading, and compliance obligations.