Learn Concept: KYC-Verified Liquidity Pools in DeFi

By: Eva Baxter

Coinbase has introduced a new initiative called Verified Pools, aimed at strengthening security and compliance within the decentralized finance (DeFi) sector. This substantial step marks a new era for how institutional and retail traders can securely access on-chain liquidity. The crux of this initiative revolves around minimizing counterparty risks through Know-Your-Customer (KYC) checks before participating in liquidity pools.

The Verified Pools ensure users can trade and interact with verified digital assets, setting a new standard for secure on-chain trading. KYC checks act as a gateway to participate in these pools, which offer validated trust badges thus enhancing user trust and reducing fraudulent activities.

Verified Pools are built on Coinbase's proprietary layer-2 blockchain, Base, leveraging Uniswap v4's advanced smart contract functionalities to optimize liquidity management. This is further facilitated by a collaboration with Gauntlet—a risk management platform—to ensure a robust and efficient market.

These pools are available in jurisdictions like the United States, Singapore, and the Netherlands among others, setting a precedent in regulatory compliance for decentralized platforms. This development could potentially redefine investor confidence and foster greater adoption and trust in DeFi, especially among institutional investors.