U.S. Treasury opens public consultation on digital IDs in cryptocurrency oversight

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Andrey Mastykin

17.08.2025

U.S. Treasury opens public consultation on digital IDs in cryptocurrency oversight — U.S. Treasury eyes digital identity

The U.S. Department of the Treasury has launched a public consultation on the use of digital identity and other advanced technologies to strengthen oversight of cryptocurrency markets. The initiative, announced this week, is part of the recently enacted Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), which President Biden signed into law in July.

The new law establishes a regulatory framework for payment stablecoin issuers and directs the Treasury to explore the adoption of advanced compliance methods. Areas under review include digital identity verification, blockchain analytics, artificial intelligence and application programming interfaces (APIs), Cointelegraph reported. The Treasury said the consultation will help identify tools that can both improve enforcement and reduce costs for financial institutions.

Identity verification in DeFi and innovation challenges

One of the most debated ideas is embedding identity verification directly into decentralized finance (DeFi) smart contracts. Under this model, a contract would automatically confirm a user’s credentials before executing a transaction, effectively integrating Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures into blockchain infrastructure.

Supporters argue that this could prevent money laundering and sanctions evasion via DeFi, while critics warn of risks to privacy and potential limits on innovation.

According to the Treasury, digital identity solutions could take the form of government-issued IDs, biometrics, or portable digital credentials managed by the user. Officials emphasized that such measures could lower compliance costs for financial institutions and simplify real-time detection of illicit activity. At the same time, they acknowledged risks around data protection and the need to balance innovation with regulation. Public comments will be accepted until October 17, 2025, after which the Treasury will present a report to Congress with potential policy recommendations.

Banking pressure and financial stability risks

The consultation comes amid pressure from U.S. banks calling for stricter rules on stablecoins. The Bank Policy Institute, representing major lenders, warned that a loophole in the GENIUS Act could allow issuers to bypass restrictions on paying interest by partnering with affiliates or exchanges. The group estimated that such products could drain trillions of dollars from deposits, limiting businesses’ access to credit.

These debates underscore the growing tension between advancing blockchain innovation and ensuring financial stability.

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