The US Treasury is exploring the implementation of digital identity checks within decentralized finance (DeFi) smart contracts as a measure to combat illicit financial activities. This initiative aims to enhance the transparency and security of DeFi platforms by ensuring that users are verified, potentially reducing the risk of money laundering and other illegal activities. The consideration of digital ID checks reflects the Treasury's ongoing efforts to regulate the rapidly growing DeFi sector, which has been criticized for its lack of oversight. By integrating identity verification, the Treasury seeks to align DeFi operations with traditional financial regulations, thereby increasing trust and compliance within the industry.