North Charlotte Today

WASHINGTON, D.C. – U.S. Senators Thom Tillis (R-NC) and John Hickenlooper (D-CO) have introduced bipartisan legislation aimed at preventing another FTX disaster. The Proving Reserves of Others Funds (PROOF) Act seeks to establish strong safeguards against instances of unethical co-mingling of customer funds in digital asset institutions.

Under the PROOF Act, digital asset institutions would be required to submit to a monthly proof of reserves (PoR) inspection by a neutral third-party auditing firm. PoR is an industry best practice that verifies whether an institution holds sufficient reserves to back its customer balances. The results of these monthly inspections would be submitted to the U.S. Department of the Treasury and made public. Failure to comply would result in civil fines, with increasing penalties for repeat offenders.

"The FTX fiasco was a direct result of mismanagement and grossly unethical decision-making, leading to significant fraud and loss of investor funds. Americans deserve better assurances regarding their deposits and the solvency of these platforms," said Senator Tillis.

Senator Hickenlooper added, "FTX's collapse made one thing clear: lack of customer protections in crypto will leave consumers in the lurch. These commonsense safeguards make crypto companies more transparent and hold them to the same standards as everyone else."

The PROOF Act aims to improve regulation of the cryptocurrency industry by explicitly prohibiting the co-mingling of funds and setting a strong transparency standard with the already-used industry best practice of PoR. This will help build trust among investors, both institutional and retail, in digital asset markets.

The legislation has received support from industry experts. Alex Thorn, Head of Firmwide Research at Galaxy, stated, "We believe this legislation will help grow the adoption of digital assets and blockchain technology while helping to modernize our financial system and ensuring the United States maintains its position as the world's premier capital market."

Nic Carter, General Partner at Castle Island Ventures, emphasized the importance of the PROOF Act in protecting consumers. He said, "The PROOF Act acknowledges these industry-led self-regulatory efforts and creates a framework to further protect consumers in the digital asset space. This Act ensures that digital asset platforms cannot comingle client and operating capital, and requires disclosures that assets held by platforms match customer liabilities."

Rich Dewey, CEO of Proven, expressed support for the legislation, stating, "The PROOF Act is exactly what users of digital assets need in the US. By banning the comingling of assets and requiring PoR, everyday users will be able to use crypto with peace of mind."

The PROOF Act aims to address the weaknesses and failures that led to the implosion of FTX. The platform co-mingled customer funds with institutional and proprietary funds, and diverted significant portions of customer deposits to its subsidiary, resulting in a lack of adequate reserves to back customer balances.

The bill seeks to establish clear and concrete customer protections and provide greater transparency into digital asset exchange and custodial operations. It establishes regulatory standards to prohibit the co-mingling of customer funds and requires digital asset exchanges and custodians to undergo a Proof of Reserves inspection by a neutral third-party.

The PROOF Act is an important step towards preventing another covert insolvency like FTX, Quadriga, or Mt Gox from occurring. It sets a standard for solvency reporting in the digital asset industry and ensures that consumers can engage in crypto with confidence.

The full text of the PROOF Act can be viewed [here](link). For more information about the bill, please visit [here](link) and [here](link).

To learn more, click on this link: https://www.tillis.senate.gov/2023/10/tillis-hickenlooper-introduce-bipartisan-legislation-to-prevent-another-ftx-disaster