Michaela
Summary: What is the U.S. Treasury considering to reduce crypto crime in DeFi?
The Treasury is exploring the use of digital identity tools and other emerging technologies to prevent illicit activity in crypto markets. This could include embedding identity verification directly into DeFi smart contracts. Public feedback will guide research, reports, and potential new regulations.
The U.S. Department of the Treasury has announced it is soliciting public input on the use of digital identity tools and emerging technologies to combat illicit activity in crypto markets, including the potential integration of identity verification directly into decentralized finance (DeFi) smart contracts.
Published on August 17, the Treasury’s notice invites the public to share insights on innovative approaches and strategies for identifying and mitigating illicit finance risks in digital asset markets.
The notice fulfills a mandate under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) and aligns with the Administration’s policy promoting the responsible development and adoption of digital assets.
The notice opens a 60-day public comment period, as required by the GENIUS Act, directing the Treasury Secretary to gather input on innovative methods and strategies that regulated financial institutions use, or could use, to detect illicit activities, including money laundering, in digital asset markets.
After reviewing public comments, the Treasury will research the suggested methods, summarize findings in a report to key Senate and House committees, propose legislative and regulatory measures, and issue guidance or rulemaking based on the results.
Furthermore, the GENIUS Act instructs the Treasury to investigate emerging compliance technologies, such as application programming interfaces (APIs), artificial intelligence, digital identity verification, and blockchain monitoring.
The Treasury’s notice also proposes that DeFi protocols could embed digital identity credentials directly into their code. This approach would allow smart contracts to automatically verify user identities before processing transactions, incorporating Know Your Customer (KYC) and Anti-Money Laundering (AML) safeguards directly into blockchain operations.
“Treasury welcomes input on any matter that commenters believe is relevant to Treasury’s efforts to identify and evaluate innovative or novel methods, techniques, or strategies that regulated financial institutions use to detect and mitigate illicit finance risks involving digital assets,” the Treasury stated.
How the Treasury incorporates public feedback could set a precedent for the wider adoption of compliance technology in digital finance. Observers say the initiative may influence how other countries approach DeFi regulation, shaping the next wave of secure, transparent blockchain innovation.
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Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
