U.S. Treasury Proposes Built-In ID Checks for DeFi Smart Contracts

🚨 U.S. Treasury Proposes Built-In ID Checks for DeFi Smart Contracts

As part of the recently passed GENIUS Act, the U.S. Treasury is evaluating whether identity verification tools should be embedded directly into decentralized finance (DeFi) protocols.

The proposal under review would allow DeFi platforms to automatically verify a user’s government ID, biometric credential, or digital wallet certificate before processing a transaction.

Supporters say this approach could:

✔️ Help prevent illicit activity

✔️ Streamline regulatory compliance

✔️ Provide real-time monitoring to detect suspicious behavior

Critics raise concerns about:

⚠️ User privacy and surveillance

⚠️ Potential exclusion of unbanked or undocumented individuals

⚠️ Centralized control in traditionally permissionless systems

Alternative solutions under discussion include:

🔹 Zero-knowledge proofs (ZKPs)

🔹 Decentralized identity (DID) frameworks

These tools aim to verify user eligibility without revealing full identity.

The Treasury’s consultation is ongoing, and final guidance is still pending.

What would built-in ID checks mean for DeFi platforms, users, and innovation in the space?

How should privacy, compliance, and inclusion be balanced in a decentralized ecosystem?