The US Treasury is considering incorporating identity checks directly into decentralized finance (DeFi) smart contracts. Critics warn this could undermine the foundational aspects of permissionless finance. Recent consultations under a new Act aim to explore compliance tools against illicit finance in crypto markets, including the integration of identity verification. While supporters argue it could enhance compliance and restrict criminal activity, like money laundering, dissenters emphasize that this could compromise user privacy by tying government IDs to blockchain transactions, erasing pseudonymity.

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