US Treasury Proposes Digital ID Mandate for DeFi Platforms to Enhance Financial Crime Prevention

The US Treasury has initiated a public consultation on August 18 to explore the integration of digital identity tools within decentralized finance (DeFi) platforms. The proposal, rooted in the GENIUS Act signed into law by former President TRUMP in July, aims to embed Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols directly into blockchain infrastructure. Smart contracts would be required to verify user identities before executing transactions, potentially curbing illicit activities like money laundering and terrorist financing.

Four technological solutions are under consideration: interoperable APIs for system communication, AI-driven transaction analysis, digital identity verification via government IDs or biometrics, and blockchain monitoring tools. The Treasury argues these measures could reduce compliance costs for financial institutions while preserving user privacy. The MOVE marks the first comprehensive US regulatory framework targeting DeFi under the GENIUS Act.