Controversy Surrounds Uniswap V4’s KYC Hook for Decentralized Finance Protocol

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This article has been republished with permission from Binance News.

According to Cointelegraph, a new hook available on an open-source directory for Uniswap V4 hooks is causing controversy within the crypto community. The hook enables users to be checked for Know Your Customer (KYC) before they can trade on a pool. Critics argue that the hook opens up the possibility of decentralized finance protocols being whitelisted by regulators.

A hook is a tool that allows developers to customize a code without altering the main structure of the program. In Uniswap V4, this hook will permit developers to use KYC verification within the decentralized finance protocol. Financial institutions use KYC procedures to authenticate customer identities and assess associated risks. A primary goal of KYC is to detect money laundering and terrorist financing activities.

The KYC hook was rolled out by a community developer on Uniswap V4’s directory as an opt-in functionality. The KYC verification is carried out by a nonfungible token (NFT). Some users argue that the hook is specific for liquidity providers and may be useful for projects that must comply with regulatory requirements in certain jurisdictions.

Governments around the world are taking a closer look at DeFi protocols and transactions. Recently, the G20 accepted a crypto regulatory roadmap proposed by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) tightening crypto regulations. Uniswap V4 introduces customizable hooks and is expected to be available in early 2024, with access limited to governance-approved entities.



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