Lawmakers Propose the PROOF Act to Avoid Another FTX Incident

US Senators introduced the PROOF Act, which would require crypto exchanges to submit to monthly reserve audits and stop co-mingling consumer funds. These safeguards would help prevent another incident like the FTX collapse.

Two senators, Republican Thom Tillis and Democrat John Hickenlooper, introduced the bill. This joint effort represents a growing bipartisan consensus that pro-crypto regulation is a top priority.

How Will the PROOF Act Impact Crypto Exchanges?

Since President Trump’s election, the US government’s attitude towards crypto regulation has changed dramatically. Although many of these changes center around loosening restrictions on businesses, there is also a major concern for consumer protection.

To that end, the aforementioned Senators introduced the PROOF Act, a bill that would regulate crypto exchanges:

“The PROOF Act would establish regulatory standards on how digital asset institutions can hold customer assets, including a prohibition of the co-mingling of customer funds [and] require any institution that provides exchange or custodial services of digital assets to submit to a monthly Proof of Reserves inspection by a neutral third-party firm,” the text reads.

If passed, the bill would prohibit crypto exchanges from mixing customer assets with institutional or proprietary funds. The US Department of the Treasury would require monthly audits for exchanges and custodians. This would be then made publicly available.

Most importantly, the bill would require exchanges to use a cryptographic method such as Merkle trees or zero-knowledge proofs to prove they have sufficient assets to cover user balances.

All of these measures would, in theory, prevent any exchanges today from replicating the FTX collapse.

Also, the fact that this bill was proposed by a Republican and Democrat represents the growing effort for bipartisan crypto support, which has been instrumental in recent victories.

Although Hickenlooper has not been a vocal crypto advocate, Tillis recently praised SEC Chair Paul Atkins‘ new regulatory approach.

At this early stage, it’s difficult to assess the bill’s chances of passing, but this bipartisan support is a strong start. If the PROOF Act becomes law, it could significantly increase consumer protections on crypto exchanges.