Under pro-crypto President Donald Trump, legislators are hastening attempts to provide more transparency and responsibility to the digital asset industry as bitcoin regulation gathers traction in the United States. Reintroduced by senators Thom Tillis and John Hickenlooper, the Proving Reserves of Other Funds (PROOF) Act is a measure meant to increase money management procedures and openness among cryptocurrency exchanges and custodians.
Originally proposed in 2023 in reaction to FTX’s fall, the PROOF Act seeks to prevent the recurrence of poor management that causes client losses and general mistrust. The bill’s central aim is to ensure that companies possessing digital assets on behalf of clients keep appropriate reserves and follow verifiable reporting guidelines.
PROOF Act’s intended actions
The PROOF Act would forbid co-mingling corporate funds with consumer assets by digital asset custodians and exchanges. To enforce this, the measure calls for required monthly Proof of Reserves (PoR) checks carried out by outside third-party auditors. These audits are used to verify companies have the real reserves they assert. The outcomes would be turned over to the U.S. Department of the Treasury to improve openness and make it public.
Without violating consumer privacy, PoR audits would validate balances using sophisticated cryptographic techniques, including zero-knowledge proofs and Merkle trees. Should a firm disobey these rules, it would be subject to civil fines and penalties rising for repeated transgressions. While some cryptocurrency companies have freely offered evidence-of-reserves in the past, these initiatives have been erratic and hardly incorporated outside validation. The PROOF Act brings a uniform, legally enforced procedure across the sector.
Why This Legislation Affects Crypto
The fresh advocacy for the PROOF Act comes after several big cryptocurrency companies, most notably FTX, have fallen from grace. Investigations found that without appropriate disclosures or enough reserves, FTX had transferred consumer deposits to Alameda Research, a related company. This activity was mostly responsible for erasing confidence in the crypto scene.
The PROOF Act rebuilds that confidence by requiring frequent reserve audits and public reporting. Additionally, the regulation is meant to encourage responsible behavior by digital asset companies. Setting consistent criteria not only safeguards consumers but also helps to facilitate more efficient government control. In the long term, this type of structure could assist the sector in getting greater institutional interest and help legitimize it.
SEC’s Crypto Agenda Evolves
The PROOF Act’s return coincides with a notable shift in American regulatory leadership. Following a 52 to 44 Senate vote, Paul Atkins has been declared the new Chair of the Securities and Exchange Commission (SEC). Renowned for his methodical approach to digital asset control, Atkins should provide the industry with a more defined framework. Following his visit, the SEC’s Division of Corporation Finance released revised recommendations for crypto issuers.
This advice describes expectations for disclosure on business models, financial statements, and risk considerations connected to tokenized assets qualified as securities. Long-time Bitcoin supporter Senator Cynthia Lummis voiced her faith in the new path. She said her conversations with Atkins left her hopeful about the SEC’s capacity to draft rules supporting innovation while safeguarding consumers.
PROOF Act’s Impact
Should the PROOF Act be passed, U.S. cryptocurrency policy may undergo a sea change. It would give investors better insight into whether platforms ethically and securely store funds. For exchanges and guardians, it would entail following explicit, legally enforceable rules to safeguard customers and guarantee operational integrity.
This law clearly states that misbehavior and unclear responsibility will not be accepted in a developing crypto industry. With clear reporting responsibilities and Treasury Department monitoring, the sector might significantly increase its credibility.
