# Lightpools: Fully KYCed Transaction Paths Will Become Dominant On Crypto Networks

As crypto grows and more institutional players get involved, there's increased need for identifying the counterparty. Regulated players can't mix money with unknown actors to comply with basic AML laws. This applies to joint staking pools (coinbase institutional staking), lending borrowing (aave arc) and any primitive that involves a pool of funds or a counterparty.

As institutional adoption increases so does the need for fully KYCed paths on-chain. As crypto grows, I expect a split into 'light pools' and 'dark pools'.

On the light path every entity will be known and every transaction between them will be known. Meanwhile on the dark path, the entities will be non-kyced and unknown. Entities based in well regulated regions like the U.S.A will prefer to operate on light paths to remain compliant. I expect lightpools to become the norm especially in regulated countries and darkpools to continue to serve an important purpose as a digital second amendment.

Services that cater to light paths will benefit from institutional capital. Lightpools will become much larger than darkpools over time. This is seen today as Coinbase grows while Binance is mired in regulatory issues and Uniswap faces an SEC lawsuit. In order to grow past a certain size in regulated countries, crypto offerings even on-chain will need to become compliant and make lightpools the default.

I think there needs to be a few primitives for lightpool crypto to become the default:

1) Better on-chain credentialing. KYC-Passports like Circle's Verite will enable actors to KYC once and use their passport across many DeFi protocols. There will be an open market of passport providers and acceptors, each of which comply with local regulation. This allows users to interact only with the protocols that match their local jurisdictions compliance requirements.

2) Hiding Private Information. The issue with crypto now is its hard to selectively reveal information. You want to keep your identity private to some actors but reveal them to others. ZK Services that allow partial information retrieval will need to become the norm.

3) Revertible Transactions (Nonessential but greatly helpful). Transactions can settle instantly on-chain, but in certain cases would need to be adjudicated by a third party. Two parties transacting should be able to mutually agree on a third party as an adjudicator, allowing the party to revert transactions under select conditions. This would allow grandmas to operate on-chain. Should the user accidentally authorize a harmful transaction, the adjudicator can revert harmful transactions. This is different from what exists now (like Visa, Mastercard, and banks) because the permissions granted to the adjudicator can be enforced in code, allowing the user to control the set of options as to what the adjudicator is allowed to do with the user's identity / funds.

This is one of the hardest challenges in crypto and is best taken on by a trusted player like Circle or Visa. I expect fully KYC-ed lightpool paths to become the default way most users transaction in the future.