The US Treasury seeks feedback on using digital identity tools to combat illicit finance in crypto markets, potentially embedding identity checks into DeFi smart contracts. This initiative follows the GENIUS Act, which requires exploring new compliance technologies like APIs, AI, digital identity verification, and blockchain monitoring.

Treasury believes digital ID solutions can lower compliance costs, enhance privacy, and facilitate the detection of illicit activities in financial institutions and DeFi services. Challenges include data privacy and regulatory oversight balances. Public comments are open until Oct. 17, 2025, with a report to Congress and possible new rules to follow.

Major US banking groups warn Congress about a GENIUS Act loophole that could allow stablecoin issuers to offer interest through partnerships, potentially causing trillions in deposit outflows from traditional banks. The Bank Policy Institute emphasized the need to tighten rules to prevent this scenario and maintain credit access for businesses.

Read more at Cointelegraph: US Treasury Considers Digital ID in DeFi to Curb Illicit Finance