The US Division of the Treasury is in search of public suggestions on how digital identification instruments and different rising applied sciences could possibly be used to combat illicit finance in crypto markets, with one choice being embedding identification checks into decentralized finance (DeFi) sensible contracts.
The consultation, 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 fee stablecoin issuers, directs the Treasury to discover new compliance applied sciences, together with utility programming interfaces (APIs), synthetic intelligence, digital identification verification and blockchain monitoring.
One of many concepts within the request for remark is the potential for DeFi protocols to combine digital identification credentials instantly into their code. Beneath this mannequin, a sensible contract may routinely confirm a person’s credential earlier than executing a transaction, successfully constructing Know Your Customer (KYC) and Anti-Money Laundering (AML) safeguards into blockchain infrastructure.
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Treasury: digital IDs may minimize compliance prices
In keeping with Treasury, digital identification options, which can embrace authorities IDs, biometrics or moveable credentials, may scale 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 issues and the necessity to steadiness innovation with regulatory oversight. “Treasury welcomes enter on any matter that commenters imagine is related 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 will situation steerage or suggest new guidelines based mostly on the findings.
Associated: GENIUS Act yield ban may push trillions into tokenized assets — ex-bank exec
US banks warn towards stablecoin yield loophole
Final week, a number of main US banking teams, led by the Financial institution Coverage Institute (BPI), urged Congress to tighten rules under the GENIUS Act, warning {that a} loophole may let stablecoin issuers bypass restrictions on paying interest.
In a letter despatched Tuesday, BPI mentioned the hole may 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 may set off as much as $6.6 trillion in deposit outflows from conventional banks, threatening credit score entry for companies.
Journal: Bitcoin vs stablecoins showdown looms as GENIUS Act nears
