The US Treasury is exploring the possibility of embedding identity verification in decentralized finance (DeFi) platforms. This initiative could significantly alter the landscape of the crypto industry.
Proposal for Identity Verification
The initiative is part of a consultation process under the GENIUS Act, signed into law in July. The Treasury is tasked with exploring new compliance technologies, such as APIs, artificial intelligence, and blockchain monitoring tools to help prevent illegal activity in digital markets.
Pros and Cons of the Proposed Measure
One idea floated is to embed digital identity credentials directly into DeFi smart contracts. This could help reduce costs for companies, strengthen user privacy protections, and allow regulators to spot red flags. However, this may undermine DeFi's principles of openness and permissionless access.
Future of DeFi and Regulatory Opportunities
The Treasury has acknowledged the complex trade-offs necessary for balancing regulation and innovation. Public comments on the proposal will be open until October 17, 2025. After the review, the Treasury will draft a report for Congress that could lead to new regulatory guidance.
The potential implementation of identity verification on DeFi platforms raises important questions about the future of regulation in the cryptocurrency space and may shape its further development.
