Safeguarding Customer Funds: Senators Introduce PROOF Act to Prevent Another FTX-Type Collapse

t solution that could bridge the gap between the crypto industry and its critics.

The Proving Reserves of Others Funds (PROOF) Act, introduced by Senators Thom Tillis (R-NC) and John Hickenlooper (D-CO), aims to establish safeguards against another collapse like the one experienced by FTX. The legislation proposes several measures to ensure the protection of customer funds and increase transparency in digital exchanges.

One key requirement of the PROOF Act is the establishment of baseline account standards by digital exchanges, which would guarantee the safety of customer funds. In addition, exchanges would be required to provide a monthly Proof of Reserves (PoR) report from a neutral third-party auditing firm. This report would verify cryptographic proof of reserves and provide information on the company's liabilities.

To enforce these requirements, the bill also outlines a set of civil penalties, including pecuniary fines payable upon offense. This would serve as a deterrent against unethical practices and provide accountability for digital exchanges.

The introduction of the PROOF Act has garnered attention and speculation about its chances of passing. Nic Carter, a partner at Castle Island Ventures, believes that while the bill may face challenges, it contains elements that could appeal to the anti-crypto caucus, particularly within the Democratic Party. Carter suggests that Democrats should appreciate the additional oversight provided by proof of reserves for exchanges and custodians.

Currently, there are divisions within the Democratic Party regarding the crypto industry. Senator Elizabeth Warren and other Democratic senators have been actively working on securing votes for an Anti-Money Laundering Act aimed at addressing the risks associated with cryptocurrencies. On the other hand, there are anti-crypto Democratic lawmakers in the House of Representatives, such as Representative Maxine Waters, who was previously pro-industry but now forms part of the House Financial Services Committee.

Despite these divisions, proof of reserves appears to be a widely sought-after solution that could bridge the gap between the crypto industry and its critics. The PROOF Act, with its emphasis on safeguarding customer funds and increasing transparency, provides a potential framework for addressing concerns and building trust in the digital asset ecosystem.