Coinbase, the listed US crypto exchange, launched Verified Pools in March this year as a stepping stone towards moving trading on-chain for both retail and institutional participants.

In decentralized finance (DeFi), liquidity pools allow users to trade digital assets without intermediaries. However, the identity of participants in liquidity pools on public blockchains have traditionally been opaque, leading to regulatory concerns from institutions.

Coinbase Verified Pools is a curated selection of DeFI liquidity pools. Kevin Johnson, vice president of institutional sales and trading at Coinbase, told Markets Media that retail or institutional customers can only participate in Verified Pools after being verified as a Coinbase customer and going through the firm’s know your customer (KYC) and anti-money laundering (AML) procedures. Verified Pools integrates identity verification with smart contract transparency and Johnson said Coinbase has “battle-tested “ KYC procedures on its exchange and in its Prime and Custody businesses that have been approved by regulators.

“We think this solves one of the major stumbling blocks that we saw for institutions that wanted to get into DeFi,” added Johnson. “They liked the idea of transparency and liquidity, but did not want to trade with an unauthorised counterparty.”

Johnson described Verified Pools as a safe space on a public chain where people can trade anonymously, while knowing they are only dealing with authorized counterparties.

Thaddeus Pinakiewicz, vice president on the research team at Galaxy Digital, said in a note: “The pseudonymous nature of public blockchains precludes most TradFi interaction because of their KYC/AML requirements, so it makes sense to extend exchange KYC on-chain in this context to lower one of the barriers to entry.”

BlackRock’s Larry Fink said in his 2025 Annual Chairman’s Letter to Investors that he  tokenized funds will become as familiar to investors as ETFs provided that the critical problem of identity verification is solved.

Fink said financial transactions demand rigorous identity checks so a new digital identity verification system is needed. For example, Apple Pay and credit cards verify identity billions of times a day and traditional trading venues do the same for buying and selling securities.

“It sounds complex, but India, the world’s most populous country, has already done it,” Fink added. “Today, over 90% of Indians can securely verify transactions directly from their smartphones.”

Once an institution has been verified by Coinbase they can use that attestation to mark a wallet – which could be Coinbase’s Prime Onchain Wallet or a third-party wallet provider, if they prefer. Verified Pools is non-custodial to allow institutions to be in control of their own assets.

Galaxy Research said Coinbase’s Verified Pools are newly launched Uniswap v4 pools, with hooks that allow custom logic to be put in anywhere in the swapping process.

“With the permissionless nature of Uniswap v4 and its hook architecture, anyone can now launch a pool and integrate the Coinbase hook into it if they want to integrate Coinbase KYC into their pool,” said Galaxy Research. “With attestations, Coinbase can easily add other exchanges or industry groups as valid users to confirm the attestations.”

Johnson said Verified Pools provides institutions with a separate pool of liquidity than its exchange, and because this liquidity is fully on-chain there will be new use cases. For example, if an institution is building an on-chain payments product, it can offer conversions from dollars to euros on-chain by linking to Verified Pools. If users have had their identity verified by Coinbase, the foreign exchange transaction can automatically take place on-chain without involving a custodian.

“There’s a decent list of things that need to happen for institutions to come on-chain and Coinbase will keep adding to that,” said Johnson. “Verified Pools was the next thing on the list.”

Verified Pools has been launched in a select group of countries, and for assets that are listed on the Coinbase exchange. Johnson said the firm wants to launch Verified Pools  in other geographies, potentially increase the number of chains where the mechanism can be used and also expand the assets that can be traded, especially if more securities and real-world assets are tokenized and available on-chain. For example, Coinbase could potentially tokenize its own stock in the future if there is regulatory approval.

every asset in the world will be on @base https://t.co/MwoJO1O2pO

— jesse.base.eth (@jessepollak) January 3, 2025

also just to be clear, you can already access $COIN on @base if you are a non-US citizen via products like @BackedFi.

we need regulatory clarity and improvements that embrace onchain as an open platform to unlock this for everyone.

— jesse.base.eth (@jessepollak) January 3, 2025

“Once new tokenized assets come to market, institutions will look for a place where they can be traded on-chain,” added Johnson. “Verified Pools is ideal due to the filtering mechanism for counterparties.”

Trading could also be combined with on-chain payments such as stablecoins or tokenized treasury funds, so there is no need to move off-chain into fiat currencies, which are currently not available 24/7.

However, Pinakiewicz said that while DeFi clearly works in a permissionless context, permissioned launches have, so far, had a shaky track record.

He wrote: “While it remains unclear whether permissioned DeFi in such a form will be a success, innovation in the regulatory compliant DeFi sub-sector it is a welcome addition to the on-chain ecosystem and potentially the next big source of users and fees for protocols weathering a broad on-chain recession.”

Pinakiewicz highlighted that Aave Arc was one of the original whitelisted products, with permissioned lending pools, but only garnered approximately $8m TVL [total value locked on a chain] before the product was ended.

Coinbase’s wallet verification program has verified about 600,000 wallets since being launched in 2023, but  on-chain economic activity related to the wallets is low, according to Pinakiewicz. He agreed that In order for economic activity to increase, more traditional, high-quality assets need to be brought on-chain.

“Regulators are working through how to allow such tokenization to occur within existing or new regulatory frameworks, with SEC Commissioner Hester Peirce writing about this in February,” added Pinakiewicz.

Johnson described Verified Pools as another addition to its broader institutional business.

“All of the pieces need to be there before institutions get on-chain and everything we have been doing for the last five years has been building up to this,” he said. “We have been  very public about the fact that our goal is to move the world on-chain where we think the opportunity for us is even greater.”