Uniswap Opens Code Suggestions to Community
Uniswap, a decentralized exchange, has invited the community to contribute code suggestions for its upcoming upgrade. However, not all suggestions have been met with enthusiasm. One controversial proposal involves implementing Know Your Customer (KYC) and whitelisting features. These tools are used to prevent illegal activities and comply with international sanctions through online identity verification. The proposals are part of Uniswap’s new “Hooks” feature, which allows third-party developers to propose changes to the exchange.
The Controversy Surrounding KYC Checks
A blockchain developer named Jongwon Park submitted code that incorporates KYC checks before users can trade on a pool. This code has sparked controversy, with investor Adam Cochran calling it a “slippery slope” for the protocol. Cochran believes that creating permissioned systems gives regulators grounds to push for their use even when unnecessary. Park argues that permissioned tools on blockchains are inevitable and that Uniswap remains permissionless. He emphasizes the importance of establishing a framework where both permissioned and permissionless protocols can coexist while remaining isolated.
Screening Processes for Illegal Activities
Uniswap, along with other DeFi protocols like dYdX and Aave, has implemented screening processes to identify wallets linked to illegal activities. The exchange screens and blocks addresses associated with entities sanctioned by the U.S. Department of the Treasury, including foreign countries and regimes, terrorists, and international criminals. Last year, Uniswap partnered with TRM Labs to enhance its screening process and block funds involved in illicit activity.
The Battle Over Mandatory KYC
Attempts have been made in the past to impose mandatory KYC on self-custody wallets and DeFi applications. However, there are projects such as Civic Pass, Polygon ID, Astra Protocol, and Parallel Markets working to provide a secure compliance process for Web3 applications while maintaining their permissionless nature.
Hot Take: Balancing Permissioned and Permissionless Protocols
The controversy surrounding Uniswap’s code suggestions highlights the ongoing debate over the integration of KYC and whitelisting features in decentralized exchanges. While some argue that these tools are necessary for preventing illegal activities, others express concerns about the potential erosion of decentralization. Finding a balance between permissioned and permissionless protocols is crucial for the future of DeFi. It requires establishing frameworks that allow for compliance with regulations while preserving the core principles of decentralization and user privacy.
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