The U.S. Department of Treasury’s just released report to Congress on innovative technologies to counter illicit finance involving digital assets makes clear that, in Washington’s emerging crypto policy, digital identity is no longer a side issue.

Digital identity is being positioned as a core compliance and security layer for the digital asset economy, especially as the administration tries to expand stablecoin and broader digital asset adoption while promising to keep illicit finance in check.

The report, required by the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), frames digital identity as one of several “innovative technologies” that regulated financial institutions…