A law that would compel cryptocurrency exchanges to hold reserves in an amount sufficient to fulfill all obligations to digital asset customers was just passed via the Texas House of Representatives, which is the lower house of the Texas State Legislature and includes 150 members.
Congrats to @VoteGiovanni & the TX House of Reps on the passage of HB 1666, a bill to protect Texas consumers’ investments in #digitalassets and addresses the critical issue of Proof of Reserves for exchanges.
— Chamber of Digital Commerce (@DigitalChamber) April 20, 2023
Statement by @PerianneDC ⬇️https://t.co/LQx6c9p3EZ
The new legislation stipulates that a digital asset service provider must submit a report to the Texas Department of Banking no later than the ninetieth day following the end of each fiscal year. The following information is required to be included in the reports, as specified by the TDB:
- An attestation by the digital asset service provider of outstanding liability to digital asset customers, documented using zero-knowledge encryption or a similar industry standard.
- Evidence of customer assets held by the person, documented using zero-knowledge encryption or a similar industry standard.
- An attestation by an auditor that the information in the report is true and accurate.
- A copy of the provider’s plan to allow auditors and customers to view the accounting of digital assets quarterly, as well as the customer’s digital assets at any time.
The purpose of this bill is to propose an amendment to the Finance Code of the state in order to establish a chapter on the regulation of digital assets. This chapter will guarantee that exchanges retain money in such a way that all clients should be able to “fully withdraw” their assets.
A further provision of the law would prevent digital asset service providers from “commingling,” or mixing, client deposits with other accounts, such as the provider’s operational capital, proprietary accounts, digital assets, fiat money, or other property that is not customer funds. The Banking Department reserves the right to withdraw the provider’s license if it is determined that the exchange has failed to comply with the standards.
In the beginning of this year, Republican Giovanni Capriglione, who is a member of the Texas House of Representatives, submitted a measure to solve a significant “proof of reserves” problem that is prevalent across the cryptocurrency sector. Proof of reserves is a mechanism that is used by providers of financial services in order to give audited or on-chain verification of client assets maintained at an exchange. This proof may be verified by the exchange itself.
In the wake of the market collapses that occurred in 2022, Texas adopted a cautious stance towards cryptocurrency. On April 12, the state Senate voted to pass a law that would take away some of the incentives for local crypto miners.
