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The fewer validators a blockchain has, the higher the performance. But at what point is it susceptible to a government shutdown is what I'm wondering.

At one point the Ronin side chain only had 5 validators!

It just depends. We don't need many if we want to be centralized but if we want to be decentralized, we need more.

For a cryptocurrency to have value it must be censorship-resistant. And if a blockchain only has a few validators I think it would be easily shutdown by the authorities once it became a real threat to the financial system.