Senators Introduce PROOF Act to Prevent Another FTX Disaster
Two U.S. senators, Thom Tillis (R-NC) and John Hickenlooper (D-CO), have introduced the Proving Reserves of Others Funds (PROOF) Act to establish safeguards against another FTX-type collapse. The bill aims to prevent unethical co-mingling of customer funds and requires monthly proof-of-reserves (PoR) reports from neutral, third-party auditing firms. Digital exchanges will need to establish baseline account standards for customer funds, verify cryptographic proof of reserves, and disclose liabilities. The legislation also includes civil penalties for offenses.
Democratic Party’s Stance on Crypto
Nic Carter, a partner at Castle Island Ventures, believes that the Democratic Party, which has been largely opposed to the crypto industry’s advancement in the U.S., may support proof-of-reserves due to its oversight benefits. While Democratic senators like Elizabeth Warren have focused on tackling risks in the crypto industry through the Anti-Money Laundering Act, some Democratic lawmakers in the House of Representatives, such as Maxine Waters, remain critical of crypto.
The Importance of Proof-of-Reserves
After the SBF debacle, people began to recognize the importance of proof-of-reserves as a public policy that provides transparency for the crypto industry. Dennis Porter, founder and CEO of Satoshi Action Fund, agrees with the idea of PoR and highlights Texas’ recent HB1666 bill as an example of a proof-of-reserves requirement at the state level. He calls for other states to adopt similar regulations with a lighter touch.
PoR as an Industry Best Practice
Alex Thorn, head of firmwide research for Galaxy Research and a crypto advocate who assisted Congress with the PROOF Act, believes that PoR has emerged as a powerful measure to promote consumer safety and regulatory compliance. Thorn hopes that policymakers will understand the benefits of digital assets and incorporate them into future policy options.
Hot Take: Proof-of-Reserves Legislation Aims to Safeguard Crypto Industry
The PROOF Act introduced by Senators Thom Tillis and John Hickenlooper seeks to establish safeguards against collapses similar to FTX. By requiring proof-of-reserves reports from neutral auditors, the bill aims to prevent unethical co-mingling of customer funds. It also sets baseline account standards, verifies cryptographic proof of reserves, and imposes civil penalties for non-compliance. While some Democrats remain critical of the crypto industry, proof-of-reserves may find support due to its oversight benefits. The importance of transparency in the industry has become evident after recent incidents, leading to calls for similar regulations at both state and federal levels. Industry experts believe that proof-of-reserves is an industry best practice and can contribute to better practices in the future.
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