Chainlink Labs Proposes Blockchain Framework in Treasury Response

• Chainlink Labs proposes blockchain tools to modernize U.S. digital asset compliance.
• Identity oracles and automation could cut costs and improve onchain transparency.
• Proof of Reserve ensures verifiable backing and strengthens regulatory oversight.

Chainlink Labs has submitted its response to the U.S. Department of the Treasury’s Request for Comment on detecting illicit activity in digital assets under the GENIUS Act. The submission outlines how blockchain and oracle technologies could strengthen compliance through cryptographic methods. Chainlink Labs pointed out that onchain compliance can deliver higher transparency, scalability, and auditability than traditional manual checks currently used by financial institutions.

The company structured its response around four key areas: digital identity, administrative control distinctions, automated rules-based compliance, and reserve transparency. Chainlink Labs stated that these components together can help regulators modernize oversight while reducing privacy and operational risks.

Chainlink Labs Advocates for Portable Digital Identity

Chainlink Labs proposed a blockchain-enabled “identity oracle” model designed to simplify KYC and AML verification while protecting user privacy. Under this system, verified credentials would be issued once and reused across institutions without re-collecting sensitive data. According to Chainlink Labs, this would eliminate redundant onboarding, lower compliance costs, and reduce the risk of data breaches.

The organization further recommended that the Treasury expand reliance provisions under the Bank Secrecy Act, allowing financial institutions to depend on blockchain-based credentials from other regulated entities. Chainlink Labs also encouraged the government to explore technologies like zero-knowledge proofs, which can confirm user eligibility for transactions without exposing personal data.

Distinguishing Software Administration from Customer Relationships

In its filing, Chainlink Labs urged the Treasury to clearly separate administrative control of smart contracts from customer relationships. It argued that holding administrative access to a contract does not equate to directly managing customer assets.

The organization suggested that developers who do not handle user funds should not fall under the same compliance obligations as financial service providers. This, it said, would support responsible software development without weakening compliance standards.

Chainlink Labs Promotes Rules-Based Onchain Compliance

Another section of Chainlink Labs’ submission focused on automated compliance engines. These programmable systems can apply compliance rules, such as KYC, AML, and sanctions screening, before a transaction is finalized.

Chainlink Labs noted that pre-set rules enforced onchain prevent suspicious transactions from completing and create verifiable audit trails for regulators. It recommended that the Treasury conduct studies on how automated compliance systems can fit within existing risk-based frameworks.

Chainlink Labs also discussed cryptographic Proof of Reserve and Secure Mint mechanisms. These systems connect offchain attestation data to onchain assets to ensure full collateralization. If reserves fall below set thresholds, minting would automatically halt, preventing misuse.