Texas House of Representatives Passes ‘Proof of Reserves’ Bill with Overwhelming Support

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Key takeaways:

  • A law requiring bitcoin exchanges to maintain reserves sizable enough to satisfy any client debts was approved by the Texas House of Representatives.
  • Providers of digital assets would be prohibited from combining consumer funds with any other kind of working capital.

On April 20th, a law requiring bitcoin exchanges to maintain reserves sizable enough to satisfy any client debts was approved by the Texas House of Representatives. The legislation would take effect on September 1st if it managed to pass the Senate and be approved by the governor. One hundred forty-eight people voted in favor of the measure, while none opposed it. The only absentee was one vote.

The Texas Finance Code, specifically Section 160, is altered by the proposed legislation. The amendments would prohibit digital asset providers from combining customer funds with any other type of operational capital and from using customer funds for any further transactions besides the initial transaction requested by the customer if they serve more than 500 customers in the state and have at least $10 million in customer funds.

In addition, the provider would need to keep reserves large enough to cover all potential withdrawals. Additionally, it needs to “create a plan” that will enable auditors to examine the data provided to the client.

An exchange must submit a report to the State Banking Department regarding its outstanding liabilities to clients by the 90th day following the end of each fiscal year. The auditor’s attestation should be included in the report as well. The Banking Department would be able to revoke the provider’s license if it did not adhere to the rules.

After the market collapses of 2022, Texas adopted a cautious attitude toward cryptocurrency. On April 12th, the state Senate passed a measure to eliminate the incentives that local crypto miners receive.

In addition to this law, the state is also considering SB 1751, which aims to limit cryptocurrency miners’ participation in the state’s demand response program for power and remove perks and incentives for them. SB 1751, in contrast to the proof of reserves measure, has faced substantial opposition from the cryptocurrency sector for being overly intrusive.

The bill, according to proponents of cryptocurrencies, will negatively affect more than 20,000 rural jobs that were recently created by the mining industry and hinder future growth. Furthermore, if the measure is implemented, consumers’ costs for essential grid services would likely increase because miners now offer these services for the lowest prices.

The bill’s sponsor, however, is of the opinion that the mining sector can continue to expand without government assistance.

Recently, the Texas House and Senate have introduced legislation that would allow the creation of a gold-backed state-issued digital currency.

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