US Treasury Department’s Initiative on Digital Identity Technologies
The US Treasury Department is actively seeking insights from the public on the implementation of digital identity technologies and other innovative tools to combat illicit financial activities within cryptocurrency markets. This initiative arises from the recently passed Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), which was signed into law in July and establishes a regulatory framework for stablecoin issuers in the US.
Integration of Digital Identity Checks
The Treasury’s call for public comments suggests that digital identity checks could potentially be embedded within the smart contracts of decentralized finance (DeFi) platforms. This integration would allow for automatic verification of user identities before any transactions are executed, effectively embedding Know Your Customer (KYC) and Anti-Money Laundering (AML) measures directly into the blockchain framework.
Exploration of Compliance Technologies
Additionally, as outlined in the recent consultation document, the Treasury is exploring various compliance technologies, including application programming interfaces (APIs), artificial intelligence, and blockchain monitoring systems. It emphasizes that solutions involving digital identities—such as government-issued IDs, biometric data, or portable credentials—could alleviate compliance costs and enhance privacy protections. This approach might simplify the identification of suspicious activities, such as money laundering and terrorist financing, prior to transactions being finalized.
Concerns and Public Input
However, the Treasury also recognizes some potential drawbacks related to data privacy and the need to maintain a balance between fostering innovation and enforcing regulatory oversight. The agency is encouraging public input related to these issues, inviting contributors to share their thoughts until October 17, 2025. After the consultation period concludes, the Treasury plans to compile a report for Congress and may consider introducing new regulatory guidance based on the feedback received.
Banking Organizations’ Concerns
In a related development, prominent banking organizations in the United States, led by the Bank Policy Institute (BPI), are urging Congress to close what they perceive as a loophole within the GENIUS Act. In a recent letter, they expressed concerns that certain provisions could inadvertently allow stablecoin issuers to circumvent interest payment restrictions by collaborating with exchanges or related entities. The BPI warned that this could result in significant withdrawals—potentially up to $6.6 trillion—from traditional banking systems, jeopardizing credit availability for businesses.
