The state of Texas has introduced new legislation targeting digital asset providers. The bill relates to the “comingling of funds” by crypto platforms.
As one would anticipate, the language of the bill requires digital asset platforms not to mix customer funds with those belonging to the digital asset platform. Use of funds may only be for a customer transaction or securing or guaranteeing a transaction. A customer must be able to withdraw the funds at any time.
Digital asset service providers will be required to file a financial document with the Texas Department of Banking no later than 90 days after the end of a fiscal year. The report will include 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” and more. The document must include an attestation by an auditor that it is factually accurate. All providers are expected to have a money transmission license to serve customers.
Lennix Lai, Chief Commercial Officer at OKX, shared a comment on the legislation:
“This shows that Proof of Reserves is being increasingly recognized as an indispensable way to show transparency and guarantee solvency using fool proof 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.”
While many people may assume that funds held at a crypto exchange or platform are safe and not-comingled too frequently, this has not been the case with the demise of FTX highlighting the lack of regulation in the ecosystem and how customer funds were abused and comingled.
The legislation, if approved by state politicians, and signed into law by the governor, is expected to take effect on September 1, 2023.
