Texas Approves HB 166 to Require Crypto Exchanges to Maintain Adequate Reserves
On April 21, the Texas House of Representatives approved a bill requiring cryptocurrency exchanges to maintain adequate reserves to fulfill their customers’ payment obligations.
According to a statement from the Texas House of Representatives, the “HB 166” bill, introduced by Representative Giovanni Capriglione, was passed by a majority of its 150 members and was aimed at “restoring trust in the market by requiring confirmation of reserves for the exchange of digital assets.”
Texas Aims to Protect Citizens
Perianne Boring, founder and CEO of the Chamber of Digital Commerce, congratulated Representative Capriglione and the Texas House of Representatives on passing a law aimed at protecting citizens from financial problems caused by exchanges when addressing such an important issue as proof of reserves.
“Congratulations to Representative Giovanni Capriglione (R-TX) and the Texas House of Representatives on passing HB 1666, which is aimed at protecting Texas consumers’ investments in digital assets and addresses the critical Proof of Reserves issue for exchanges,” she said.
She also stated that the approval of the HB 166 bill “represents an important step in ensuring stability and security in the digital asset market.” Similarly, she emphasized the importance of requiring exchanges to provide proof of reserves, demonstrating their ability to cover all user funds.
The Proof of Reserves requirement will prevent exchanges from being used to commit fraud or scams, such as FTX, which is classified as one of the largest financial frauds in US history, causing thousands of American citizens to lose millions of dollars, according to Congresswoman Maxine Waters.
Proof of reserves is the process by which a cryptocurrency exchange demonstrates that it holds sufficient funds to cover customer deposits. This transparency helps protect customers’ assets and can increase trust in the exchange.
In contrast, traditional banks use a fractional reserve system, where they are not required to hold the entire amount of customer deposits in reserve, which can create liquidity problems during a financial crisis. While it is true that banks, due to their size and regulatory oversight, are less likely to destabilize the situation than smaller exchanges, both systems can face risks during extreme events or crises.
Texas Becomes an Example to Follow in Regulatory Space
Thanks to this new law, Texas has become an example to follow in other US jurisdictions. Recently, Bittrex, one of the largest and oldest US exchanges, announced the closure of its operations due to the uncertain regulatory environment in the country, which became an obstacle to such business.
Binance and Coinbase are other exchanges that have faced regulatory problems due to the lack of clear laws allowing them to operate smoothly, even to the point of considering leaving the country.
In conclusion, Texas has taken a significant step in the regulation of cryptocurrency exchanges by requiring Proof of Reserves. This new law is a move in the right direction in ensuring the stability and security of the digital assets market, and other US jurisdictions may follow Texas’s example in implementing such protective measures.