Does KYT + DeFi make sense?

Hi all!

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I'm studying DeFi atm and came across the concept of KYT (Know-Your-Transaction).

From my understanding this enables the mapping of addresses to real-world entities, which in turn enables crypto organizations to blacklist said entities.

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On one hand this is great and likely necessary in the long-run to ensure cryptocurrencies don't become the go-to for criminal/terrrorist activity.... However, on the other hand I can't help but view this as coming full circle back to centralization and traditional finance?

As this is such a key argument for DeFi, I would love to get some thoughts from those who know more than me!

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Note: I am definitely a beginner in terms of DeFi, and am genuinely looking to tap into the shared wisdom of reddit to better understand the space :)