The KYC hook for Uniswap v4 has sparked community controversy

A new hook available on the open source directory for Uniswap V4 hooks is causing controversy in the crypto community. The hook allows users to perform a Know Your Customer (KYC) check before trading on a pool.

Criticizing the hook, user X (formerly of Twitter) stated that the hook opens up the possibility of decentralized financial protocols being registered by regulators.

“As I explained in all my posts last year: it starts with a “kyc option” for LPs. And finally it's hosted offchain to a “regulatory whitelist approved” database. And then non-kyc is called illegal terrorist money. Fake. Stop kidding soyboys.”

Basically, a hook is a tool that allows developers to customize code without changing the core structure of the program. In Uniswap V4, this hook allows developers to use KYC verification in the decentralized finance protocol.

Financial institutions use KYC procedures to verify the identity of customers and assess the associated risks. The main goal of KYC is to detect money laundering and terrorist financing activities.

The KYC hook has been deployed as an opt-in functionality on the Uniswap V4 directory by a community developer. The KYC verification is done through a non-volatile token (NFT). As another user of X, the hook is specific to liquid suppliers and may be useful for projects that meet regulatory requirements in certain jurisdictions:

“You don't seem to understand how this works. #1 It's lp specific. Some projects may want to work within legal jurisdictions. #2 Hooks can be run by community devs. They're trashing something that works more. More for “real Diff.”

Governments around the world are closely watching DeFi protocols and transactions. Recently, the Group of Twenty world's largest economies, the G20, adopted the crypto regulatory roadmap proposed by the International Monetary Fund (IMF) and the Financial Stability Board (FSB) to tighten crypto regulations.

Uniswap V4 introduces customizable hooks and is expected to be available in early 2024, with access to management-approved entities only.

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