- Texas has approved a bill that demands exchanges prove they have enough funds to honor all customer deposits
- The Proof of Reserve bill was only read to the House for the first time six weeks ago
- The bill also prevents the commingling of funds
The Texas House of Representatives approved a bill on Friday requiring cryptocurrency exchanges to prove they can honor all customer deposits. HB 1666, filed by State Representative Giovanni Capriglione and co-sponsored by five other representatives, passed with a majority of 150 members and aims to “rebuild trust in the market by requiring Proof of Reserves for digital asset exchanges.” This is the first such bill put forward by a state and aims to prevent another FTX-style collapse from impacting customers. Under the bill, exchanges that cannot satisfactorily prove that their holdings equate to user deposits will be banned from operating in the state until they can.
Texas Wants to Prevent Another FTX
The ‘Proof of Reserve’ bill was filed in late January, two and a half months after the collapse of FTX, and was only read to the house for the first time in March. The passage of the bill has therefore been rapid, with the House voting to pass the bill just six weeks after this initial reading.
Crypto exchanges that wish to operate in Texas will now have to prove that they have enough assets that all customers should be able to “fully withdraw” their assets if requested.
The proposed legislation will forbid digital asset service providers from commingling customer deposits with other accounts, such as the provider’s operating capital, proprietary accounts, digital assets, fiat currency, or any other non-customer funds. FTX was discovered to have engaged in such practices on an almost endemic level, complicating efforts to determine the actual ownership levels of the exchange.
