US Treasury Proposes Digital ID Verification for DeFi Platforms

The US Treasury is exploring regulatory measures that WOULD require decentralized finance (DeFi) protocols to integrate digital identity verification into their smart contracts. The initiative stems from the GENIUS Act, signed into law in July, which mandates the Treasury to investigate compliance technologies such as APIs, AI, and blockchain analytics.

One proposed solution involves embedding government-issued IDs, biometrics, or portable credentials directly into DeFi platforms. This would enable automated Know Your Customer (KYC) and Anti-Money Laundering (AML) checks before transactions are executed. The Treasury claims such measures could reduce compliance costs while maintaining—or even enhancing—user privacy.

The MOVE signals growing institutional scrutiny of DeFi ecosystems, with regulators seeking to balance innovation against illicit finance risks. Public comments are being solicited on the feasibility of implementing these identity safeguards at the protocol level.