II 

118TH CONGRESS 

1ST SESSION S. 3087 

To impose requirements on digital exchanges, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 19, 2023 

Mr. TILLIS (for himself and Mr. HICKENLOOPER) introduced the following 

bill; which was read twice and referred to the Committee on Banking, 

Housing, and Urban Affairs 

A BILL 

To impose requirements on digital exchanges, and for other 

purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Proving Reserves Of 

5 Others’ Funds Act’’ or the ‘‘PROOF Act’’. 

6 SEC. 2. DEFINITIONS. 

7 In this Act: 

8 (1) COVERED ASSET.— 

9 (A) IN GENERAL.—The term ‘‘covered 

10 asset’’ means, with respect to a customer of a 


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1 digital exchange, money, an asset, or property 

2 of the customer. 

3 (B) EXCEPTIONS.— 

4 (i) PROPRIETARY FUNDS.—The term 

5 ‘‘covered asset’’ does not include propri6 etary funds of a digital exchange. 

7 (ii) MARGIN ACCOUNTS.—If a cus8 tomer of a digital exchange has opened a 

9 margin account for the purposes of bor10 rowing cash or digital assets, or other re11 lated activity, the assets in that margin ac12 count are not covered assets. 

13 (2) DIGITAL ASSET.—The term ‘‘digital asset’’ 

14 means any digital representation of value that is re15 corded on a cryptographically secured digital ledger. 

16 (3) DIGITAL COMMODITY.—The term ‘‘digital 

17 commodity’’ means any form of fungible and intan18 gible personal property that— 

19 (A) can be— 

20 (i) exclusively possessed; and 

21 (ii) transferred from a person to an22 other person without necessary reliance on 

23 an intermediary; and 

24 (B) is not an investment contract. 

25 (4) DIGITAL CUSTODIAN.— 


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1 (A) IN GENERAL.—The term ‘‘digital cus2 todian’’ means an entity that holds, maintains, 

3 or safeguards digital commodities, digital as4 sets, and other assets on behalf of a customer. 

5 (B) EXCEPTION.—Any entity facilitating 

6 clearing or settling services of a covered asset 

7 on behalf of a customer shall not be considered 

8 to be a digital custodian of that covered asset 

9 for the duration of the clearing or settling proc10 ess. 

11 (5) DIGITAL EXCHANGE.—The term ‘‘digital ex12 change’’ means a trading facility that lists for trad13 ing not less than 1 digital commodity or digital 

14 asset. 

15 (6) DIGITAL WALLET.—The term ‘‘digital wal16 let’’ means any device, physical medium, program, or 

17 service that stores a digital asset or digital com18 modity. 

19 (7) INVESTMENT CONTRACT.— 

20 (A) IN GENERAL.—The term ‘‘investment 

21 contract’’ means a contract— 

22 (i) that provides for an investment of 

23 money in an enterprise with a sponsor; and 

24 (ii) the objective of the performance of 

25 which is primarily profit (rather than conVerDate Sep 11 2014 21:24 Oct 25, 2023 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3087.IS S3087

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1 sumption), which is derived primarily from 

2 the managerial or entrepreneurial efforts 

3 of the sponsor described in clause (i). 

4 (B) USE OF CERTAIN TERMS.—For the 

5 purposes of subparagraph (A)— 

6 (i) the term ‘‘money’’ means— 

7 (I) any medium of exchange rec8 ognized as legal tender anywhere in 

9 the world; or 

10 (II) any convertible virtual cur11 rency, as defined by the Financial 

12 Crimes Enforcement Network of the 

13 Department of the Treasury; and 

14 (ii) the term ‘‘sponsor’’ means a man15 ager or entrepreneur that has solicited in16 vestment in a contract described in that 

17 subparagraph. 

18 (C) EFFECT OF MEMBERSHIP IN CERTAIN

19 ORGANIZATIONS.—A member of a formal or in20 formal decentralized autonomous organization 

21 is not, solely by reason of that membership, or 

22 through participation in such an organization, 

23 the holder of an investment contract. 

24 (D) EXCLUSIONS.—A contract that would 

25 otherwise be an investment contract under this 


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1 paragraph is not an investment contract if the 

2 obligee of that contract— 

3 (i) as of the date on which the con4 tract became effective, primarily expected 

5 profit from performance of the contract; 

6 and 

7 (ii)(I) at a date after the date de8 scribed in clause (i)— 

9 (aa) primarily expects to con10 sume goods or services associated with 

11 the contract; or 

12 (bb) no longer expects profit pri13 marily from the managerial or entre14 preneurial efforts of the sponsor de15 scribed in subparagraph (A)(i) with 

16 respect to the contract. 

17 (8) OFFICE.—The term ‘‘Office’’ means the Of18 fice of Domestic Finance of the Department of the 

19 Treasury. 

20 (9) UNDER SECRETARY.—The term ‘‘Under 

21 Secretary’’ means the Under Secretary of the Treas22 ury for Domestic Finance. 


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1 SEC. 3. REQUIREMENTS FOR DIGITAL EXCHANGES RE2 GARDING TREATMENT OF CUSTOMER AS3 SETS. 

4 (a) REQUIRED STANDARDS AND PROCEDURES.— 

5 Each digital exchange shall establish baseline accounting 

6 standards and procedures that are designed to protect and 

7 ensure the safety of covered assets of customers of the 

8 exchange. 

9 (b) HOLDING OF CUSTOMER ASSETS.— 

10 (1) IN GENERAL.—Each digital exchange shall 

11 hold the covered assets of each customer of the ex12 change in a manner that minimizes— 

13 (A) the risk of loss by the customer of any 

14 such covered asset; and 

15 (B) any delay in the customer accessing 

16 any such covered asset. 

17 (2) SEGREGATION OF FUNDS.— 

18 (A) IN GENERAL.—Each digital exchange 

19 shall treat and deal with all covered assets of a 

20 customer of the exchange that are received by 

21 the exchange as belonging to the customer. 

22 (B) CO-MINGLING PROHIBITED.—Except 

23 as provided in subparagraph (C), with respect 

24 to any covered asset of a customer of a digital 

25 exchange, the exchange may not— 


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1 (i) co-mingle that covered asset with 

2 assets that are not covered assets; or 

3 (ii) use that covered asset to margin, 

4 secure, or guarantee any trade or account 

5 of any person other than the customer for 

6 which that item is held. 

7 (C) EXCEPTIONS.— 

8 (i) IN GENERAL.—A digital exchange 

9 may, for convenience, co-mingle and de10 posit a covered asset of a customer of the 

11 exchange in the same account as funds of 

12 the exchange with any bank, trust com13 pany, or qualified digital custodian. 

14 (ii) WITHDRAWAL.—A digital ex15 change may withdraw from a bank, trust, 

16 or digital wallet account such share of a 

17 covered asset of a customer of the ex18 change as may be necessary in the ordi19 nary course of business to margin, guar20 antee, secure, transfer, adjust, or settle a 

21 transaction regarding a digital asset or 

22 digital commodity with another digital ex23 change, including for the payment of a 

24 commission, a brokerage fee, interest, 

25 taxes, storage costs, or any other charge 


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1 that lawfully accrues in connection with a 

2 digital commodity transaction. 

3 (iii) SUBSTITUTION.—A customer may 

4 explicitly consent to a digital exchange sub5 stituting covered assets of the customer 

6 with certain other assets. 

7 (c) ENFORCEMENT.— 

8 (1) IN GENERAL.—If, in the process of review9 ing a report submitted to the Under Secretary under 

10 section 4(b) with respect to a digital exchange, the 

11 Under Secretary discovers that the digital exchange 

12 has violated a provision of this section, the Under 

13 Secretary, through the Office, shall impose a civil 

14 penalty on the digital exchange in the manner de15 scribed in clauses (i), (ii), and (iii) of section 

16 4(c)(1)(A) (subject to paragraph (2) of this sub17 section). 

18 (2) RULE OF CONSTRUCTION.—For the pur19 poses of a civil penalty imposed under paragraph 

20 (1)— 

21 (A) an entity that is subject to the require22 ments of section 4(a), as described in section 

23 4(c)(1)(A), shall be deemed to be an entity that 

24 is subject to the requirements of this section; 

25 and 


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1 (B) the failure of an entity to satisfy the 

2 requirements of section 4(a), as described in 

3 section 4(c)(1)(A), shall be deemed to be a fail4 ure to satisfy the requirements of this section. 

5 SEC. 4. ATTESTATION REQUIREMENTS. 

6 (a) ATTESTATION.— 

7 (1) IN GENERAL.—Not later than 30 days after 

8 the effective date of this section, and monthly there9 after, each digital exchange and each digital custo10 dian shall obtain from an independent auditing firm 

11 an attestation that the applicable entity has proof of 

12 reserves, which shall be accompanied by appropriate 

13 evidence demonstrating proof of those reserves, as 

14 described further in subsection (b). 

15 (2) INABILITY TO OBTAIN SERVICES OF AUDIT16 ING FIRM.— 

17 (A) IN GENERAL.—A digital exchange or 

18 digital custodian may contract with, or other19 wise obtain the services of, a disinterested third 

20 party to carry out the responsibilities of an 

21 independent auditing firm under paragraph (1) 

22 only if the digital exchange or digital custodian 

23 is unable to contract with, or otherwise obtain 

24 the services of, an independent auditing firm to 

25 carry out those responsibilities. 


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1 (B) APPLICABILITY.—If a digital exchange 

2 or digital custodian contracts with, or otherwise 

3 obtains the services of, a disinterested third 

4 party as described in subparagraph (A), that 

5 third party shall be subject to the requirements 

6 of this section to the same extent as an inde7 pendent auditing firm carrying out the respon8 sibilities described in paragraph (1). 

9 (3) INDUSTRY STANDARD.— 

10 (A) SOLICITATION OF STANDARD.—Not 

11 later than 90 days after the date of enactment 

12 of this Act, the Public Company Accounting 

13 Oversight Board and the American Institute of 

14 Certified Public Accountants shall jointly issue 

15 a request for public comment soliciting pro16 posals from the digital asset industry regarding 

17 a standard for the attestations required under 

18 this section. 

19 (B) ESTABLISHMENT OF ADVISORY COM20 MITTEE.—After the expiration of the 90-day pe21 riod described in subparagraph (A), the Public 

22 Company Accounting Oversight Board and the 

23 American Institute of Certified Public Account24 ants shall establish an advisory committee that 


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1 shall be comprised of the entities that submit 

2 proposals under that subparagraph. 

3 (C) CREATION OF STANDARD.—The advi4 sory committee established under subparagraph 

5 (B) shall— 

6 (i) create a proposed standard for the 

7 purposes described in subparagraph (A); 

8 and 

9 (ii) submit to the Public Company Ac10 counting Oversight Board and the Amer11 ican Institute of Certified Public Account12 ants the proposed standard described in 

13 clause (i) for approval of the proposed 

14 standard by those entities. 

15 (D) APPROVAL OF STANDARD.— 

16 (i) IN GENERAL.—Not later than 18 

17 months after the date of enactment of this 

18 Act, the Public Company Accounting Over19 sight Board and the American Institute of 

20 Certified Public Accountants shall jointly 

21 approve a proposed standard submitted to 

22 those entities under subparagraph (C). 

23 (ii) EXTENSION OF DEADLINE.—If, as 

24 of the date that is 18 months after the 

25 date of enactment of this Act, the Public 


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1 Company Accounting Oversight Board and 

2 the American Institute of Certified Public 

3 Accountants have not issued a joint ap4 proval described in clause (i), the 18- 

5 month deadline described in that clause 

6 with respect to that approval shall be ex7 tended by consecutive 180-day periods 

8 until the date on which those entities issue 

9 such an approval. 

10 (b) REPORTS.— 

11 (1) IN GENERAL.—An auditing firm that pre12 pares an attestation under subsection (a) with re13 spect to an entity shall, after making the attestation, 

14 submit to the Under Secretary a report that ad15 dresses the following with respect to the entity: 

16 (A) Cryptographic proof of possession or 

17 control over keys that are capable of effec18 tuating the transfer, change of control, or 

19 movement of a chain of assets that are owned 

20 by a person other than that entity, such as a 

21 customer of the entity. 

22 (B) Verification of cryptographic proof of 

23 reserves of the entity. 

24 (C)(i) Verification of cryptographic proof 

25 of the liabilities of the entity. 


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1 (ii) For the purposes of clause (i), cryp2 tographic proof means a cryptographically 

3 verifiable attestation using a Merkle tree struc4 ture, a zero-knowledge proof, or another similar 

5 mechanism that can prove— 

6 (I) the existence of the applicable li7 abilities; and 

8 (II) that the applicable liabilities are 

9 the legal responsibility of the entity that is 

10 the subject of the report. 

11 (2) PUBLIC AVAILABILITY.—The Under Sec12 retary, through the Office, shall make each report 

13 received under paragraph (1) available to the public, 

14 which shall include, in addition to the material de15 scribed in subparagraphs (A), (B), and (C) of that 

16 paragraph— 

17 (A) the name of the entity for which the 

18 attestation that is the subject of the report was 

19 performed; and 

20 (B) the name of the auditing firm that 

21 made the attestation described in subparagraph 

22 (A) of this paragraph. 

23 (c) ENFORCEMENT.— 

24 (1) CIVIL PENALTIES.— 


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1 (A) IN GENERAL.—With respect to an en2 tity that is subject to the requirements under 

3 subsection (a) and fails to satisfy those require4 ments, the Under Secretary, through the Office, 

5 shall, subject to subparagraph (B), impose a 

6 civil penalty on the entity as follows: 

7 (i) If that failure is the only such fail8 ure by the entity during the most recent 

9 24-month period, the amount of the pen10 alty shall be the greater of the following: 

11 (I) 25 cents per user or customer 

12 of the entity (as applicable), as of the 

13 date on which the penalty is imposed. 

14 (II) 2.5 basis points of the total 

15 assets under management by the enti16 ty, as of the date on which the penalty 

17 is imposed. 

18 (ii) If the entity has 1 additional such 

19 failure during the most recent 24-month 

20 period, the amount of the penalty shall be 

21 the greater of the following: 

22 (I) 55 cents per user or customer 

23 of the entity (as applicable), as of the 

24 date on which the penalty is imposed. 


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1 (II) 5.5 basis points of the total 

2 assets under management by the enti3 ty, as of the date on which the penalty 

4 is imposed. 

5 (iii) If the entity has more than 1 ad6 ditional such failure during the most re7 cent 24-month period, the amount of the 

8 penalty shall be the greater of the fol9 lowing: 

10 (I) 90 cents per user or customer 

11 of the entity (as applicable), as of the 

12 date on which the penalty is imposed. 

13 (II) 9 basis points of the total as14 sets under management by the entity, 

15 as of the date on which the penalty is 

16 imposed. 

17 (B) LIMITATION.—The Under Secretary, 

18 through the Office, may not impose a penalty 

19 on an entity under subparagraph (A) if the im20 position of that penalty would cause the total 

21 amount of penalties imposed on that entity 

22 under that subparagraph for the year in which 

23 the penalty would be imposed to exceed the 

24 lesser of the following: 


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1 (i) $1 per user or customer of the en2 tity (as applicable), as of the date on which 

3 the penalty would be imposed. 

4 (ii) 10 basis points of the total assets 

5 under management by the entity, as of the 

6 date on which the penalty would be im7 posed. 

8 (2) PUBLICATION.—The Under Secretary, 

9 through the Office, shall make publicly available, 

10 with respect to the most recent 24-month period, the 

11 name of each entity that is subject to the require12 ments under subsection (a) and has failed to satisfy 

13 those requirements. 

14 (3) APPEALS.— 

15 (A) IN GENERAL.—The Under Secretary 

16 shall establish a process through which an enti17 ty on which a penalty is imposed under para18 graph (1) may appeal that penalty. 

19 (B) WAIVER OF PENALTY.—The Under 

20 Secretary shall waive a penalty imposed under 

21 paragraph (1) if the Under Secretary deter22 mines in an appeal brought under subpara23 graph (A) of this paragraph that the reason 

24 that the Under Secretary did not receive a re25 port under subsection (b)(1) is because of an 


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1 action or omission by an auditing firm and not 

2 the entity on which the Under Secretary im3 posed the penalty. 

4 (C) PAUSE IN PAYMENT.—An entity on 

5 which the Under Secretary imposes a penalty 

6 under paragraph (1) shall not be required to 

7 pay that penalty during the period in which an 

8 appeal brought by the entity under this para9 graph is pending. 

10 (d) EFFECTIVE DATE.—This section shall take effect 

11 on the date on which the Public Company Accounting 

12 Oversight Board and the American Institute of Certified 

13 Public Accountants jointly approve, under subsection 

14 (a)(3), an industry standard for the attestations required 

15 under this section. 

Æ 


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