Reclaim The Net Coding KYC into smart contracts threatens to turn permissionless finance into a gated system.
By Ken Macon
The US Treasury is exploring whether decentralized finance (DeFi) smart contracts should include embedded digital identity checks, a move that would fundamentally alter how anonymity and privacy function in blockchain-based ecosystems.
This initiative stems from the recently enacted Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which not only establishes a regulatory path for dollar-backed tokens but also mandates that stablecoin issuers comply with anti-money laundering laws, including Know Your Customer (KYC) requirements.
As part of the law’s rollout, the Treasury has issued a formal request for public feedback on novel techniques to detect illicit finance involving digital assets.
One of the methods now on the table is coding identity verification directly into DeFi protocols.
The options listed in the Treasury’s consultation include government-issued identification, biometric data, and so-called “portable digital identity credentials.”
Smart contracts could be designed to check for such credentials before allowing a transaction to proceed. Blockchain monitoring and analytics tools are also under review.
Comments are due by October 17. After that deadline, the Treasury will submit a report to Congress and may issue proposed rules.
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