U.S. Treasury Opens Public Debate on Digital Identity in Crypto Rules

The United States Treasury is taking a bold step in deciding how to regulate the fast-moving crypto industry. This week, the Department of the Treasury opened a public consultation on how digital identity and new technology could help stop crime in crypto markets. The discussion stems from the GENIUS Act, a law signed in July that sets the ground rules for stablecoin issuers. The Act pushes the Treasury to look beyond traditional tools and consider modern solutions, including Artificial Intelligence (AI). The initiative aims to explore ways these tools can strengthen oversight and reduce illicit activity. US Treasury Exploring New Technology for Safer Crypto The agency is considering changing how decentralized finance (DeFi) works. The Treasury is exploring whether identity verification can be written directly into smart contracts. In practice, this means a smart contract would automatically confirm a user’s digital identity before approving a blockchain transaction. The verification could rely on a government ID, biometric scan, or portable digital credential. If successful, this approach would place Know Your Customer (KYC) and Anti-Money Laundering (AML) checks at the heart of blockchain systems, not just in the hands of exchanges or banks. Supporters believe this could lower compliance costs, protect user privacy, and block suspicious transactions before they happen. Treasury Weighs Privacy and Oversight in Crypto Identity Plan While the proposal is promising, it raises difficult questions about how much personal data should be tied to blockchain activity. It also challenges whether digital identity systems can protect privacy while still providing regulators with the information they need. The Treasury Department admits that striking the right balance will not be easy. The agency is inviting the public to share views and ideas, noting that feedback will shape its report to Congress and possible new rules. Comments are open until October 17, 2025. Treasury Review Puts Spotlight on Stablecoin Risks The consultation comes at a time of rising tension between traditional banks and the crypto industry . Last week, the Bank Policy Institute (BPI) and other major banking groups urged Congress to close what they see as a dangerous gap in the GENIUS Act. They argue that some stablecoin issuers could try to partner with exchanges to offer interest-bearing products. BPI warns that if this loophole goes unchecked , stablecoins could lure trillions of dollars away from banks. This could reduce credit available for businesses and create risks for the wider financial system. Treasury’s request marks a new phase in the U.S. approach to digital finance. The outcome could reshape how people interact with crypto platforms and how DeFi projects are built. It could also redefine the role of stablecoins within the wider economy. The post U.S. Treasury Opens Public Debate on Digital Identity in Crypto Rules appeared first on TheCoinrise.com .