US Treasury Considers Introducing Digital Identity Verification to DeFi to Prevent Illegal Financial Transactions

The U.S. Treasury Department is seeking public input on the possible use of new technologies, including digital IDs, to curb illicit financial activity in the cryptocurrency (virtual currency) market.
On the 17th (local time), it was revealed that the US Treasury Department is considering incorporating identity verification procedures directly into decentralized finance (DeFi) smart contracts.
The request for comment follows the July enactment of the "Genius (U.S. Stablecoin) Innovator Guide and Establishment Act," which aims to promote payment-based stablecoins.
The government is developing a regulatory framework for BlueCoin issuers, and is also directing the Ministry of Finance to research new regulatory compliance technologies, including APIs, AI, digital identity verification, and blockchain monitoring.
The Ministry of Finance's consultation document also includes the idea of integrating digital identity verification directly into DeFi protocols at the code level. In this case, smart contracts would be used to execute transactions.
This will allow users to automatically verify their credentials before making a transaction, and KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures to be built into the blockchain infrastructure itself.
The Treasury Department said, "Digital identity verification includes government-issued IDs, biometrics, and portable digital credentials, which can reduce regulatory compliance costs while also protecting personal information.
"This will enable financial institutions and Defi Services to more easily detect money laundering, terrorist financing, and sanctions evasion before a transaction occurs," he said.
However, the Treasury Department acknowledged potential challenges, such as data privacy concerns and the need to balance innovation with regulatory oversight.
The public comment period will run until October 17, after which the Ministry of Finance will submit a report to Parliament and, based on the results, will formulate guidelines or propose new regulations.
There is a possibility to suggest it.