Cardano and Its Regulatory Problems: How EDI Can Be a Solution

The Edinburgh Decentralization Index could be the solution to Cardano’s regulatory uncertainties.

The Edinburgh castle floating on a Cardano coin in between pink clouds.
Created by Gabor Kovacs from DailyCoin
  • Cardano (ADA) continues to navigate regulatory tensions. 
  • ADA has yet to recover from the SEC’s crypto crackdown. 
  • The Edinburgh Decentralization Index (EDI) could address Cardano’s regulatory uncertainties. 

Cardano continues to face regulatory pressure as major US exchanges initiate a delisting spree and dump their ADA holdings, citing regulatory uncertainty.

While Cardano has exhibited strength by holding firm above crucial support levels despite news of impending chaos surfacing, its fate in the US hangs by a thread. Interestingly, the upcoming Edinburgh Decentralization Index (EDI) could address its regulatory uncertainties by laying the foundation for a solid regulatory framework. 

What is the Edinburgh Decentralization Index (EDI)? 

The Edinburgh Decentralization Index is a collaborative effort between the University of Edinburgh and the Cardano Foundation that aims to measure the level of decentralization of cryptocurrencies such as Bitcoin, Ethereum, and Cardano. 

The index aims to analyze different layers, such as governance, consensus, and more, as shown in the diagram below, to identify the different aspects of the centralization of a cryptocurrency project. 

The Edinburgh Decentralization Index (EDI) Methodology.
The Edinburgh Decentralization Index (EDI) Methodology. Source: University of Edinburgh.

According to the developers of the EDI, each layer holds significance in determining the decentralization of a project. For example, centralization at the consensus layer exposes vulnerabilities in the transaction validation process, while centralization at the tokenomics level introduces the risk of price manipulation. Additionally, centralization at the network level threatens censorship and so on. 

The EDI index aims to accelerate adoption by laying a solid framework for regulators to adhere to beyond abstract definitions, which could significantly impact the future of Cardano and other cryptocurrency projects. 

How does the Edinburgh Decentralization Index (EDI) Impact Cardano? 

The Edinburgh Decentralization Index is one of Cardano’s many meticulously researched projects. The index incorporates important metrics such as the Herfindahl-Hirschman, Gini, and Nakamoto coefficients. These metrics would provide valuable insights into Cardano’s level of decentralization, further cementing its position in the crypto industry.

Cardano founder Charles Hoskison has previously highlighted the potential impact of EDI on governments and regulatory bodies worldwide. The founder shared that by using the index to assess decentralization, policy-makers could formulate informed regulations and differentiate between cryptocurrencies as either commodities or protocols based on their decentralization. 

Hoskinson emphasized that major regulatory bodies, such as MiCA and those in the United States, could adopt these metrics once they are complete, fostering a more nuanced and optimized regulatory framework. 

On the Flipside

Why This Matters

Cardano is the seventh-largest token by market cap and the third-largest blockchain ecosystem. The SEC’s actions had a damning effect on a token as impactful and large as Cardano. The Edinburgh Decentralization Index could potentially address the SEC’s concerns with the network and the cryptocurrency sector as a whole. 

Read about other solutions: 

Cardano and the SEC Problem: How CIP-1694 Could Provide Solutions 

More on Cardano

What Is Cardano’s Hydra Pay, and How Does It Revolutionize Micro Payments? 

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Insha Zia

Insha Zia is a senior journalist at DailyCoin covering crypto developments, especially in the Cardano ecosystem. With a Bachelor of Science in Computer Systems Engineering, he delivers high-quality articles with his technical background and expertise in data analysis and programming languages, aiming to educate and inform readers accurately, transparently, and engagingly. Insha believes education can drive mass adoption of the crypto space, and he is committed to giving DailyCoin readers a better understanding of the technology.