The Texas House of Representatives has passed a bill that would require crypto exchanges operating in the state to provide proof of reserves and comply with other rules to ensure the safety and transparency of their customers’ funds. The bill, which was approved on April 20, 2023, is seen as a positive step in regulating the crypto sector without imposing excessive restrictions or bans.

According to the bill, digital asset service providers that serve more than 500 customers in Texas and have at least $10 million of customer funds would have to follow certain requirements, such as:

– Not comingling customer funds with any other type of operational capital or using customer funds for any other transactions besides those requested by the customer.
– Holding reserves in an amount sufficient to fulfill all obligations to customers and allowing auditors to review the information made available to customers.
– Filing a report with the State Banking Department by the 90th day after the end of each fiscal year, including an attestation by an auditor of outstanding liabilities to customers.

The bill also gives the Banking Department the authority to revoke the license of any provider that fails to comply with these requirements.

The bill is based on the concept of “proof of reserves”, which is a method of verifying that an exchange has enough assets to cover its liabilities. This method aims to prevent situations like the collapse of Mt. Gox, a former crypto exchange that lost millions of dollars worth of customer funds due to hacking and mismanagement.

The bill was sponsored by Representative Tan Parker, who said that it would “deliver accountability and transparency” to crypto users and “ensure consumer protection”. He also said that Texas is “leading the way” in embracing innovation and technology.

The bill now moves to the Senate for consideration. If it passes the Senate and receives the governor’s signature, it could become law by September 1, 2023.

The bill is one of several crypto-related bills that have been introduced in Texas this year. Another bill, which was passed by the Senate on April 12, 2023, aims to limit the participation of crypto miners in demand response programs, which are incentives offered by the state’s grid operator ERCOT to reduce power consumption during peak demand. The bill’s supporters argue that crypto mining consumes too much energy and poses a threat to the stability of the grid.

Texas is not the only state that is trying to regulate crypto exchanges and protect users. In February 2023, New York Attorney General Letitia James issued a warning to crypto investors and businesses, saying that they must follow the state’s laws and regulations or face legal action. She also announced a settlement with Bitfinex and Tether, two major crypto companies, over allegations of fraud and market manipulation.