A recently introduced feature in an open-source directory for Uniswap V4 is causing a stir in the cryptocurrency community. This feature allows users to undergo a Know Your Customer (KYC) check before they can engage in trading within a pool.
A user on Twitter shared criticizing the hook that introducing the hook raises the possibility of decentralized finance protocols to be officially approved by regulatory authorities.
A “hook” is like a special tool that allows software developers to customize a code without altering the main structure of the program. In the case of Uniswap V4, this “hook” will allow developers to add KYC within the decentralized finance system.
Banks and other financial institutions use KYC to authenticate their customers and to determine if any risks are associated with them. Primary reasons for using KYC is to spot activities related to money laundering or funding terrorism.
So, in Uniswap V4, this “hook” is like a tool that enables developers to build in a KYC check. This can help make the decentralized finance system more secure by verifying user identities and looking out for suspicious financial activities.
The KYC hook was disclosed by a community software developer on Uniswap V4’s directory and the verification of KYC is carried out by a NFT.
According to another Twitter user, it is mainly designed for people who provide liquidity to the platform and can be valuable for projects that need to follow specific rules and regulations in certain areas.
The Twitter user stated, “Seems like you don’t understand how this works. #1 it’s lp specific. Some projects may want to operate within the legal confines of jurisdiction. #2 hooks can be made by community devs. You’re trashing something that has done more than anyone else for “real defi.”
Uniswap V4 will launch customizable hooks in early 2024, and only entities approved by the governance of the platform will have access.