US Treasury weighs digital ID verification in DeFi to sort out illicit finance

Discover insights within the Crypto house. This article dives into: “US Treasury weighs digital ID verification in DeFi to tackle illicit finance”.

The US Department of the Treasury is looking for public suggestions on how digital id instruments and different rising applied sciences could possibly be used to struggle illicit finance in crypto markets, with one possibility being embedding id checks into decentralized finance (DeFi) smart contracts.

The session, revealed this week, stems from the newly enacted Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), signed into regulation in July.

The Act, which units out a regulatory framework for cost stablecoin issuers, directs the Treasury to discover new compliance applied sciences, together with utility programming interfaces (APIs), artificial intelligence, digital id verification and blockchain monitoring.

One of the concepts within the request for remark is the potential for DeFi protocols to combine digital id credentials instantly into their code. Under this mannequin, a smart contract might routinely confirm a consumer’s credential earlier than executing a transaction, successfully constructing Know Your Customer (KYC) and Anti-Money Laundering (AML) safeguards into blockchain infrastructure.

Treasury considers digital ID verification in DeFi. Source: Laz

Related: GENIUS Act to spark wave of ‘killer apps’ and new cost providers: Sygnum

Treasury: digital IDs might lower compliance prices

According to Treasury, digital id options, which can embody authorities IDs, biometrics or moveable credentials, might cut back compliance prices whereas strengthening privateness protections.

They might additionally make it simpler for monetary establishments and DeFi providers to detect cash laundering, terrorist financing, or sanctions evasion earlier than transactions happen.

Treasury additionally acknowledged potential challenges, together with information privateness considerations and the necessity to stability innovation with regulatory oversight. “Treasury welcomes input on any matter that commenters believe is relevant to Treasury’s efforts,” the company wrote.

Public feedback are open till Oct. 17, 2025. Following the session, Treasury will submit a report back to Congress and should situation steerage or suggest new guidelines primarily based on the findings.

Related: GENIUS Act yield ban might push trillions into tokenized belongings — ex-bank exec

US banks warn in opposition to stablecoin yield loophole

Last week, a number of main US banking teams, led by the Bank Policy Institute (BPI), urged Congress to tighten guidelines beneath the GENIUS Act, warning {that a} loophole might let stablecoin issuers bypass restrictions on paying curiosity.

In a letter despatched Tuesday, BPI stated the hole might enable issuers to companion with exchanges or associates to supply yields, undermining the intent of the regulation. The group cautioned that unchecked progress of yield-bearing stablecoins might set off as much as $6.6 trillion in deposit outflows from conventional banks, threatening credit score entry for companies.

Magazine: Bitcoin vs stablecoins showdown looms as GENIUS Act nears

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