I consider people in Mexico way less technically sophisticated than people in the US, and adoption has been going well. So I believe implementing something like that would be possible in the US as well.
The issuing/reissuing process has been solved and is working fine, reissuing can even be done online (key-pairs have a longevity limit).
Can't you piggyback off of the processes for social security cards?
I have family who tried to get a replacement SSN card during COVID and the process has been entirely impossible. This a drawback to using physical tokens.
Also, this doesn't eliminate identity theft, the point of issuing is the weak-point for fraud.
1. The office was physically closed for business during COVID.
2. They needed to get documentation which was physically in another country.
3. They could not travel to that country due to travel restrictions.