U.S. Treasury Explores Digital ID in DeFi with Public Consultation

The U.S. Treasury has initiated a public consultation to integrate digital identity checks in DeFi smart contracts under the GENIUS Act, aiming to counter illegal financial activities by October 2025.

This initiative could reshape DeFi compliance norms and affect stablecoin systems, risking $6.6 trillion in bank deposits, pending regulatory developments post-consultation.

Treasury’s GENIUS Act Sparks DeFi Regulatory Debate

The U.S. Treasury has launched a public consultation under the GENIUS Act to address illicit financial activities in DeFi. This includes exploring digital identity verification, involving API interfaces for automatic KYC/AML checks and the use of biometrics. The public consultation will remain open until October 17, 2025.

The proposal signifies a shift towards integrating modern technology in regulatory frameworks. It could herald new regulations post-consultation, addressing persistent stablecoin risks highlighted by banking groups. “Formal warnings to the Treasury have been documented, projecting $6.6T deposit outflows reflecting systemic U.S. financial risk channels,” according to ChainCatcher.

No immediate official statement from major DeFi protocols such as Uniswap, Aave, or Lido has been observed. However, the community remains alert, anticipating regulatory actions. Industry warnings suggest potential risks if regulatory gaps persist, notably from prominent banking groups.

Regulatory Efforts and Market Dynamics Amid U.S. Treasury Actions

Did you know? Previous U.S. regulatory efforts on digital finance compliance have influenced DeFi protocols, occasionally causing fluctuations in total value locked (TVL), particularly seen during the 2022-24 periods concerning KYC/AML discussions.

According to CoinMarketCap, Ethereum (ETH) stands as a significant player with a current price of $4,468.15, a market cap of 539.34 billion, and a 24-hour trading volume of 26.14 billion, experiencing a 47.28% drop in trading activity. Recent price changes reflect a 23.58% gain over 30 days. Ethereum’s circulating supply remains at 120,707,874, highlighting ETH’s influential role in DeFi market dynamics.

The Coincu research team anticipates potential shifts in financial regulations that could redefine compliance costs, potentially affecting liquidity and stability within DeFi ecosystems. This aligns with emerging technological trends using biometric identification in reducing compliance complexities.