Coinbase Creates Verified Pools, a Verified DeFi Built from Uniswap, with Noncustodial Wallet

Coinbase has launched Verified Pools, a tool to swap or trade tokens over a DeFi network. However, with an added feature, liquidity providers must verify their identities. This new feature, according to Coinbase, will increase security and transparency. 

Decentralized Finance allows people to trade tokens without an intermediary. However, such an approach creates a new problem because liquidity providers do not know who they are trading with, adding to the risk profile of DeFi trading. Coinbase solves this problem by verifying users through the Coinbase wallet, making the process less cumbersome.

Verified Pools run on Base, a layer 2 Ethereum blockchain. It operates as an online service, adding a level of security and transparency to the Coinbase exchange. The pools are noncustodial, meaning users have more control over their funds. 

“Coinbase is excited to introduce Verified Pools,” announced Coinbase, “a trusted way to seamlessly trade and swap on-chain. Whether you’re an institution seeking to provide liquidity or a retail trader looking for an easy way to start trading onchain, Verified Pools is setting a new standard: compliance meets efficiency, and trust meets transparency”.

Verified Pools, developed from Uniswapv4, allows Coinbase to create a custom smart contract, including verification data, running on Base, Coinbase’s layer 2 network, allowing for faster and cheaper transactions. Coinbase contracted Gauntlet, a risk modelling company, to make sure the pools work correctly, minimising risk for consumers. 

Base, a layer 2 blockchain, allows users to exchange directly within the pools, minimizing transaction times and verifying all users, thus increasing the market’s liquidity. And on top of that, Coinbase claims that users have complete control of their wallets. Such a balance between trustless blockchains and centralized exchanges, on paper at least, provides benefits from both approaches. In other words, Coinbase could be trying to have its cake and eat it by using both centralized and decentralized technology. 

Coinbase, although announcing the new technology, has not provided a date for its implementation. Despite the use case for verified pools, a market for decentralized exchanges (DEX) already exists, providing a possible challenge for Coinbase. The promise of a noncustodial wallet also sounds very appealing, especially after the FTX exchange collapse. Yet whether the user has complete control over their wallet while required to verify their identity is yet to be seen. 

“Decentralized finance (DeFi),” wrote Coinbase, “has been one of the most exciting frontiers in crypto, offering innovative ways to engage in various on-chain activities. Liquidity pools are a primary example, allowing users to trade digital assets without intermediaries. However, liquidity pools have traditionally been opaque-it hasn’t always been clear who is providing funds, leading to potential risks”.

Verified Pools will be available in select countries like America, Singapore, and the Netherlands. Moreover, Coinbase plans to extend its service to more countries, add more trading pairs, and integrate the blockchains of more Decentralized Exchanges (DEX). 

Coinbase has been renenergized since Trump ended the ‘war on crypto’, taking him seriously when he said he wants America to be the ‘crypto capital of the world’, a complete reversal from the previous administration, and giving Coinbase a good reason to employ more staff and invest in research and development. Moreover, the SEC has dropped their legal investigation into Coinbase, freeing up time for the exchange to pursue more valuable activities. The watchdog of American securities behaves more like a security guard, a form of unproductive labor, than an institution aiming to promote fair trade and honest business.

“Coinbase Verified Pools”, wrote Coinbase, discussing the problem of anonymous liquidity providers, “change that. It’s a curated selection of liquidity pools by connecting your Prime Onchain Wallet, Coinbase Wallet, or another third-party wallet with the Coinbase Verifications credential, which serves as a trusted badge in the Onchain ecosystem. Verified Pools is currently open to users in the U.S., Singapore, Netherlands, British Virgin Islands, Cayman Islands, and the Channel Islands”.