U.S. Treasury Seeks Digital ID Integration in DeFi to Strengthen AML Compliance

The U.S. Department of the Treasury has launched a public consultation under the GENIUS Act, a legislative measure signed into law by President Donald Trump on July 2, 2025. The act mandates the exploration of advanced compliance technologies, including digital identity verification, to bolster anti-money laundering (AML) efforts within the cryptocurrency sector [1]. This marks a pivotal shift in regulatory strategy, aiming to integrate compliance mechanisms directly into the technological infrastructure of digital finance systems [2].

As part of the initiative, the Treasury is seeking input on the integration of digital identity checks into decentralized finance (DeFi) platforms and smart contracts. The goal is to automate Know Your Customer (KYC) and AML procedures, embedding compliance at the foundational level of digital financial architecture [3]. This approach is intended to address the rising risks associated with digital currencies and to ensure the integrity of the U.S. financial system [4].

The GENIUS Act also introduces a regulatory framework for payment stablecoin issuers, requiring them to adhere to strict compliance standards. The consultation process is expected to gather insights from a range of stakeholders, including technology firms, financial institutions, and DeFi developers, to assess the feasibility and implications of embedding digital identity verification mechanisms [5].

The initiative has sparked a public debate on the balance between regulatory oversight and the decentralized ethos of DeFi. While critics argue that integrating identity verification into smart contracts could undermine the core principles of decentralization and privacy, proponents stress the necessity of these measures to prevent the misuse of cryptocurrencies for illicit activities [6].

The Treasury has not outlined a specific timeline for the implementation of proposed solutions but emphasized that the consultation will inform future regulatory guidance. The feedback received will be crucial in shaping the practical application of the GENIUS Act and its impact on the broader crypto ecosystem [7].

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Sources:

[1] Title: Trump's New Stablecoin Law Triggers Public Debate in the U.S. (https://coindoo.com/trumps-new-stablecoin-law-triggers-public-debate-in-the-u-s/)

[2] Title: US Treasury Considers Digital ID in DeFi to Curb Illicit Finance (https://cointelegraph.com/news/us-treasury-digital-id-defi-illicit-finance)

[3] Title: U.S. Treasury Launches Stablecoin Consultation Under the GENIUS Act (https://www.ainvest.com/news/treasury-launches-stablecoin-consultation-genius-act-2508)

[4] Title: U.S. Treasury Proposes Digital ID Verification in DeFi (https://www.ainvest.com/news/treasury-proposes-digital-id-verification-defi-strengthen-aml-compliance-2508/)

[5] Title: US Treasury Considers Digital ID Requirements for DeFi Platforms to Combat Financial Crime (https://bravenewcoin.com/insights/us-treasury-considers-digital-id-requirements-for-defi-platforms-to-combat-financial-crime)

[6] Title: U.S. Treasury Opens Public Consultation on Digital IDs in DeFi (https://tradersunion.com/news/cryptocurrency-news/show/440379-u-s-treasury-opens-public-consultation)

[7] Title: US Treasury Weighs Digital ID Verification in DeFi to Tackle Illicit Finance (https://www.tradingview.com/news/cointelegraph:0e244adeb094b:0-us-treasury-weighs-digital-id-verification-in-defi-to-tackle-illicit-finance/)