Senate Republican drafting proof-of-reserve legislation

Sen. Thom Tillis, R-N.C., is drafting legislation to require digital asset exchanges and custodians operating in the U.S. to provide an independently verified proof-of-reserves for their assets. 

In a brief interview with The Block, Tillis characterized his draft legislation as an easier bill to pass than a comprehensive framework around cryptocurrencies. 

“I’m in the lean regulatory regime camp here,” said Tillis, who sits on the Senate Banking Committee. 

The bill aims to head off another major crypto firm collapse, like FTX’s following a run on the company’s FTT exchange token. Companies would also be explicitly prohibited from commingling customer assets with company funds, as prosecutors allege happened with FTX and Alameda Research, the Bahamian exchange’s sister investment firm. 

Companies holding customer digital assets in the U.S. would be required to post independently audited proofs-of-reserves on a quarterly basis, making them public through publication on the Treasury Department’s website. If firms cannot find an auditing firm to verify that it holds the assets it claims it does, then another third-party firm could be used. 

Failure to submit proofs-of-reserves would lead to civil penalties, with fines increasing each time a company fails to comply. 

Tillis added that he hopes to introduce the bill “over the next week or so,” after securing support from the Democratic offices he and his staff are in talks with. 

Disclaimer: Beginning in 2021, Michael McCaffrey, the former CEO and majority owner of The Block, took a series of loans from founder and former FTX and Alameda CEO Sam Bankman-Fried. McCaffrey resigned from the company in December 2022 after failing to disclose those transactions.