Texas ‘Proof of Reserves’ Bill Passes House of Representatives

The Texas House of Representatives has passed a bill that requires cryptocurrency exchanges to provide proof of reserves. This “Proof of Reserves” bill aims to enhance consumer protection and ensure that exchanges are holding the required amount of assets to cover withdrawals. The move is significant, as Texas is one of the largest hubs for cryptocurrency activity in the US. The bill will now move to the state Senate for consideration.

Texas House of Representatives Approves Bill Requiring Cryptocurrency Exchanges to Maintain Reserves

In a recent move, the Texas House of Representatives has approved a bill that will require cryptocurrency exchanges to maintain reserves to fulfill all obligations to digital asset customers. The bill seeks to amend the state’s Finance Code to ensure exchanges maintain funds in a way that allows all customers to fully withdraw their assets. Additionally, digital asset service providers will be prohibited from “commingling” customer deposits with other accounts, including the provider’s operating capital, proprietary accounts, digital assets, fiat currency, or other property that is not customer funds.

The bill was introduced by Republican member Giovanni Capriglione to address a crucial “proof of reserves” issue across the crypto market. Proof of reserves is a method used by financial services providers to provide audited or on-chain proof of customer assets held at an exchange. To comply with the new law, exchanges will be required to submit an annual report on customer deposits and evidence of assets held by the exchange documented using zero-knowledge encryption or a similar industry standard. Customers must also be able to access a quarterly accounting of outstanding liabilities and assets held in reserve on their behalf.

If passed, the law will come into effect from September 2023. The state Senate, which comprises 31 members, must now approve the bill before the Governor can sign it into law. In response to the news, Lennix Lai, chief commercial officer of OKX, said that the bill highlights proof of reserves as an indispensable way to show transparency and guarantee solvency. Cody Carbone, vice president of crypto advocacy group Digital Chambers, also praised the bill, stating that requiring proof of reserves and segregation of assets is exactly what should be required by custodians to further improve transparency in the digital asset markets.

This move follows Texas’ recent decision to move a Bitcoin mining bill to reprieve miners of specific benefits to restrict their usage during peak demands. The Senate has passed the bill, pending the House’s approval.

In summary, the bill passed by the Texas House of Representatives aims to improve transparency and protect digital asset customers. If signed into law, it will require exchanges to maintain reserves to fulfill all obligations to digital asset customers and prohibit commingling of customer deposits with other accounts. With this move towards greater accountability, Texas is set to cement its place as a leader in digital asset regulation.

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