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Crypto exchanges that want to do business in Texas will need to maintain enough reserves to fulfill all obligations to their customers, according to a newly-approved piece of legislation.
The Texas legislature today approved House Bill 1666 (HB1666) to establish “proof of reserves” rules requiring crypto exchanges to provide an audited or on-chain proof of assets at all times.
Last week, the Texas House of Representatives sent the bill to the state senate. Discussion of the bill concluded today with a vote.
Aiming to amend the state’s finance code, the law enacts regulations and duties stating that companies cannot maintain customer funds in such a manner that cannot be “fully withdrawn” by users, nor can these be used for any other purposes than a customer transaction.
HB-1666, co-sponsored by Texas Rep. Giovanni Capriglione and Sen. Tan Parker, will also require companies to segregate and separately account for customer funds, effectively banning “commingling” or mixing user deposits with other digital assets, the service provider's capital, or “other property that does not belong to the customer.”
The bill “increases transparency while continuing the light touch regulatory stance and pro-business environment that Texas has cultivated,” said Lee Bratcher, president of the Texas Blockchain Council. But he added that this “is not sufficient in and of itself to prevent fraud in the digital asset space, but it is a useful tool.”
“Passing of this legislation makes Texas the safest place in the country to trade cryptocurrencies,” Cody Carbone, vice president of crypto advocacy group Digital Chambers told Decrypt. He added: “Platforms that choose to operate in Texas are now held to a higher standard that gives investors and consumers peace of mind that their money and assets are safe.”
The first-of-a-kind bill comes amid last year’s atrocious track record for digital asset platforms, with FTX, Terra, Three Arrows Capital, and Celsius collapsing and leaving customers waiting to see how much of their funds they’ll be able to recover through the bankruptcy process.
Despite today’s news, not all is rosy in the lone star state for digital asset companies.
April saw the approval of Texas Senate Bill 1751, which looks to introduce restrictions on Bitcoin mining activities, raising the alert among mining advocates. The bill, however, awaits full Senate approval, House of Representative discussions, and would then need to make its way to Texas Gov. Greg Abbot for a signature.