tl;dr
US Senators Thom Tillis (R-NC) and John Hickenlooper (D-CO) reintroduced the PROOF Act, aiming to tighten regulations on digital asset custodians. The legislation requires monthly third-party inspections of custodial reserves and prohibits the mixing of customer and institutional funds. Non-complian...
US Senators Thom Tillis (R-NC) and John Hickenlooper (D-CO) reintroduced the PROOF Act, aiming to tighten regulations on digital asset custodians. The legislation requires monthly third-party inspections of custodial reserves and prohibits the mixing of customer and institutional funds. Non-compliance would result in civil penalties. The bill seeks to establish uniform reserve verification across platforms that custody digital assets, ensuring transparency and solvency for users.
The PROOF Act proposes two primary requirements for digital asset exchanges and custodians. First, it would establish regulatory standards that explicitly prohibit mixing customer and institutional funds. Second, it would obligate these platforms to undergo monthly Proof of Reserves (PoR) inspections conducted by a neutral third party, preferably a certified auditing firm. Under the bill’s provisions, the results of each PoR inspection would be submitted to the US Department of the Treasury, which would be responsible for publicly disclosing the findings. Entities that fail to comply would face civil penalties under a tiered enforcement structure, with repeat violations triggering escalated consequences.
The bill defines PoR as a cryptographic method that enables exchanges and custodians to verify asset backing for user deposits. Techniques such as Merkle trees or zero-knowledge proofs allow these entities to demonstrate reserve holdings without disclosing sensitive information. The process is designed to maintain transparency while respecting the privacy and security of the platform and its users.
Although several crypto firms have voluntarily published reserve attestations since the FTX collapse, the PROOF Act addresses gaps in standardization and oversight. The bill notes that many prior implementations were inconsistent and lacked certified public accountant (CPA) validation. Tillis and Hickenlooper’s proposal seeks to move the practice from voluntary to mandatory, requiring uniform reserve verification across platforms that custody digital assets.
Chainlink cheered on the bill reintroduction, calling it a “critical step toward establishing Proof of Reserve requirements for digital assets.” The post added: “As more real-world assets move onchain, legislation such as the PROOF act reinforces the importance of Proof of Reserves and is essential in ensuring transparency for the digital asset industry.”