Uniswap V4 pools have introduced a new "hook" that enables Know Your Customer (KYC) verification.

The implementation has sparked concerns among critics who worry that it could lead to decentralized finance protocols being whitelisted by regulators and render non-KYC trades illegal.

Hooks serve as a means for developers to modify code without altering the fundamental structure of the program. In this instance, developers have the ability to integrate KYC procedures into the decentralized finance protocol.

KYC processes are commonly employed by financial institutions to verify customer identities and assess associated risks, primarily to combat money laundering and related activities.

The introduction of the KYC hook was initiated as an optional feature by a community developer and is facilitated through a nonfungible token (NFT).

Proponents have argued that this hook could prove beneficial for projects and liquidity providers that must adhere to regulatory requirements within specific jurisdictions.

As the governance oversight of DeFi protocols and transactions faces increasing international scrutiny, the G20 group recently approved a more stringent regulatory proposal for cryptocurrencies put forward by the IMF and Financial Stability Board.