The Texas proof-of-reserve bill passed a vote in the state senate on May 15 and now awaits only the governor’s signature. The potential law would mandate all cryptocurrency exchanges to maintain reserves “sufficient to fulfil all customer obligations”.
The bill targets digital asset providers, either with $10 million in customer funds or more than 500 customers, in particular. It requires the exchanges to submit a report to the Texas Banking Department within 90 days following each fiscal year’s conclusion as proof of customer assets, which can be validated by an auditor. The report should also contain any kind of outstanding debts owed to any of its customers. Failing to comply with any of these norms would grant the Banking Department the power to revoke the license of the corresponding digital asset company.
The proof-of-Reserve bill was introduced in response to a series of collapses that occurred in 2022 involving crypto lenders such as Voyager, Celsius, Blockfi and FTX. These incidents led to the freezing of customer assets for a significant duration of time.
The bill aims to create a protective measure that directs exchanges to maintain reserves.
This procedure ensures that the exchanges always have sufficient funds to meet all of their customer obligations. Implementation of this procedure would ensure the prevention of such events in the future and enhance the security as well as protection of customers in the cryptocurrency industry.
Texas has taken bold legislative efforts in the crypto realm. Apart from passing the proof-of-reserve bill, the Senate also imposed restrictions on crypto mining incentives.
Concurrently, Lawmakers voted in favor of amending the state’s Bill of Rights including a provision that acknowledges the rights of individuals to hold, own and use digital currencies.