Blockchain Builders: Don’t Ignore KYT

Nominis Research Team
2 days ago
3 min read

As DeFi matures, the industry is confronting a difficult truth: openness without accountability can create systemic risk. While DeFi thrives on permissionless innovation, it also introduces blind spots — particularly around who is validating transactions and where value is flowing. That’s where the conversation around permissioned infrastructure and KYT becomes critical.

But KYT today isn’t just about compliance. It’s about visibility, intelligence, and operational integrity across the blockchain stack.

Five people collaborate on blockchain ideas at a whiteboard in a modern office. Blue lighting enhances the creative atmosphere.

Permissionless vs. Permissioned: What’s the Real Risk?

Public blockchains like Ethereum are permissionless — anyone, anywhere, can run a validator and earn fees for processing transactions. While this supports decentralization, it also obscures who’s actually powering your transaction.

Let’s say you’re interacting with a DeFi protocol. You pay gas fees — but do you know who’s receiving them? If a validator resides in a sanctioned country or is linked to a threat actor — say, a North Korean hacker group — you may unknowingly be funding illicit activity. That’s not just a legal concern — it’s a reputational and operational risk.

Permissioned blockchains, on the other hand, restrict validator access to verified participants. Identity and accountability are baked into the infrastructure.

The Shift: Controlled Validator Sets and Institutional Design

DeFi-native builders and institutional blockchain networks are already moving toward more controlled infrastructure. Converge, a Layer 1 chain launched by Ethena Labs and Securitize, offers optional permissioning and identity-based validator controls tailored for institutional needs. Coinbase’s Verified Pools, built on its Base network, restrict access to KYC’d users by requiring verifiable credentials before interacting with liquidity pools. Meanwhile, Uniswap v4 introduces “hooks” — smart contract extensions that allow custom access rules and compliance logic directly within the pool lifecycle.

This marks a turning point — but it’s not enough to know who is using your platform. You also need to understand what is happening beneath the surface.

KYT as Infrastructure Intelligence

KYT has traditionally been viewed as a compliance function — screening wallet addresses, monitoring flows, detecting illicit patterns. But in 2025, KYT is infrastructure intelligence.

It helps answer questions like:

Is this validator associated with a known risk group?
Are protocol fees flowing through high-risk jurisdictions?
Is this seemingly clean address actually laundering funds through mixers or bridges?

In this broader view, KYT extends beyond end-user behaviour to include:

Validator-level analysis: Track and assess risk across the validator set.
On-chain and off-chain fusion: Combine blockchain analytics with darknet, sanctions, and behavioral intel.
Smart routing decisions: Enable protocols to route transactions or delegate staking based on risk scores.

This moves KYT from compliance checkbox to operational safeguard — especially when used proactively in smart contract logic, block propagation, and infrastructure selection.

Three nested circles on an orange background. Text reads: "Validator Transparency," "Transaction Monitoring," "Traceability Design," showing layered design concepts.

Final Thought: Clean Infrastructure Is Scalable Infrastructure

We often talk about smart contracts and protocols, but the chain beneath them — the validators, the routing, the consensus mechanisms — is infrastructure. And like any infrastructure, it can be exploited if not monitored.

Builders who design with KYT in mind aren’t just compliant — they’re future-ready. Because in the next era of DeFi, trust won’t be assumed. It will be proven, validated, and traceable — down to the very nodes that keep the network alive.

FAQs

Q: What is a permissioned blockchain?

A permissioned blockchain is a network where only approved participants — like known institutions or verified validators — can validate transactions or access certain features. It’s the opposite of public blockchains like Ethereum, where anyone can participate anonymously.

Q: Who are validators in blockchain?

Q: Why should developers care about who validates a transaction?

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