The Texas House of Representatives has approved a bill requiring crypto exchanges to maintain reserves “in an amount sufficient to fulfil all obligations to customers”.
Texas state representative Giovanni Capriglione filed the bill in January 2023, not long after the FTX scandal which involved the cryptocurrency exchange not having enough reserves to give all of its customers when they requested their money. This new law could come into play as soon as September 2023, if the bill passes the Senate and receives the governor’s signature.
Lennix Lai, chief commercial officer at cryptocurrency exchange OKX, explained why proof of reserves is important. Lai said: “This shows that Proof of Reserves is being increasingly recognised as an indispensable way to show transparency and guarantee solvency using foolproof cryptographic methods.
“Our world is rapidly moving from trust-based systems to trustless systems and we need ‘future tools’ to show users that their funds are safe at all times. OKX is leading when it comes to empowering users with real-time verification of reserves and liabilities. As this becomes the norm in the industry, it will build trust and support the development of the crypto sector overall.”
What does the bill say?
The bill would apply to any digital asset service provider operating within Texas that :
- Serves more than 500 digital asset customers in Texas
- Has at least $10million in customer funds
If the digital asset service provider meets the requirements, they are legally required to follow these rules, if approved by the Senate:
- They may not mix customer funds with funds belonging to the digital asset service provider, including the digital asset service provider’s operating capital; proprietary accounts; digital assets or any other property
- They may not use customer funds to secure or guarantee a transaction other than a transaction for the customer contributing the funds
- Cannot hold customer funds in such a way that any of their customers may be unable to fully withdraw their funds
- The digital asset service provider shall maintain reserves in an amount sufficient to fulfil all obligations to digital asset customers
Within 90 days after the end of each fiscal year, each digital asset service provider will have to file a report detailing “outstanding liability to digital asset customers”. The report also requires “evidence of customer assets held by the person” and “an attestation by an auditor that the information in the report is true and accurate”.
