The US Treasury is considering embedding identity verification directly into DeFi smart contracts, a move critics warn could undermine permissionless finance and increase government surveillance.
What Is the Proposal?
Under the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), signed in July, the Treasury is exploring compliance tools to curb illicit finance in crypto markets. One suggestion is to integrate KYC/AML checks into blockchain infrastructure, allowing real-time ID verification before transactions proceed.
This could involve:
- Government ID checks
- Biometric authentication
- Digital wallet certificates
Supporters argue that these measures will prevent money laundering and streamline compliance, reducing criminal activity in DeFi.
Critics Warn of ‘Surveillance Finance’
Privacy advocates argue the plan threatens DeFi’s core principle of pseudonymity. Mamadou Kwidjim Toure, CEO of Ubuntu Tribe, compared it to “putting cameras in every living room.”
Main Concerns:
- Loss of Privacy: Linking IDs to wallets makes every transaction traceable, removing financial anonymity.
- Government Overreach: Could lead to censorship, blacklisting wallets, or automated tax collection.
- Exclusion: Billions without formal IDs, including migrants and refugees, risk being locked out of DeFi.
- Data Breaches: Connecting biometrics with financial data could create catastrophic security risks.
Experts suggest privacy-preserving solutions like:
- Zero-Knowledge Proofs (ZKPs) – Verify eligibility without revealing personal details.
- Decentralized Identity (DID) standards – Allow users to control their data.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.