,,ii  #aahth ,,congress  #ast ,session  
,s4 #cjhg  ,,in ,,the ,,senate ,,of     
,,the ,,united ,,states  ,october #ai1  
#bjbc,mr4 ,tillis 7for himself and ,mr4 
,hickenlooper7 introduced the following 
bill2 which was read twice and referred 
to the ,committee on ,banking1 ,housing1
 and ,urban ,affairs  ,a ,,bill  ,to    
impose requirements on digital          
exchanges1 and for other purposes4  #a4 
,short title ,this ,act may be cited as 
the ,proving ,reserves ,of ,others'     
,funds ,act or the ,,proof ,act4  #b4   
,definitions ,in this ,act3 7#a7        
,covered asset  7,a7 ,in general ,the   
term covered asset means1 with respect  
to a customer of a digital exchange1    
money1 an asset1 or property of the     
customer4  7,b7 ,exceptions  7i7        
,proprietary funds ,the term covered    
asset does not include proprietary funds
 of a digital exchange4  7ii7 ,margin   
accounts ,if a customer of a digital    
exchange has opened a margin account for
 the purposes of borrowing cash or      

digital assets1 or other related        
activity1 the assets in that margin     
account are not covered assets4  7#b7   
,digital asset ,the term digital asset  
means any digital representation of     
value that is recorded on a             
cryptographically secured digital       
ledger4  7#c7 ,digital commodity ,the   
term digital commodity means any form of
 fungible and intangible personal       
property that-- 7,a7 can be-- 7i7       
exclusively possessed2 and  7ii7        
transferred from a person to another    
person without necessary reliance on an 
intermediary2 and  7,b7 is not an       
investment contract4  7#d7 ,digital     
custodian  7,a7 ,in general ,the term   
digital custodian means an entity that  
holds1 maintains1 or safeguards digital 
commodities1 digital assets1 and other  
assets on behalf of a customer4  7,b7   
,exception ,any entity facilitating     
clearing or settling services of a      
covered asset on behalf of a customer   
shall not be considered to be a digital 

custodian of that covered asset for the 
duration of the clearing or settling    
process4  7#e7 ,digital exchange ,the   
term digital exchange means a trading   
facility that lists for trading not less
 than #a digital commodity or digital   
asset4  7#f7 ,digital wallet ,the term  
digital wallet means any device1        
physical medium1 program1 or service    
that stores a digital asset or digital  
commodity4  7#g7 ,investment contract   
7,a7 ,in general ,the term investment   
contract means a contract-- 7i7 that    
provides for an investment of money in  
an enterprise with a sponsor2 and  7ii7 
the objective of the performance of     
which is primarily profit 7rather than  
consumption71 which is derived primarily
 from the managerial or entrepreneurial 
efforts of the sponsor described in     
clause 7i74  7,b7 ,use of certain terms 
,for the purposes of subparagraph 7,a7--
 7i7 the term money means-- 7,i7 any    
medium of exchange recognized as legal  
tender anywhere in the world2 or  7,,ii7

 any convertible virtual currency1 as   
defined by the ,financial ,crimes       
,enforcement ,network of the ,department
 of the ,treasury2 and  7ii7 the term   
sponsor means a manager or entrepreneur 
that has solicited investment in a      
contract described in that subparagraph4
  7,c7 ,effect of membership in certain 
organizations ,a member of a formal or  
informal decentralized autonomous       
organization is not1 solely by reason of
 that membership1 or through            
participation in such an organization1  
the holder of an investment contract4   
7,d7 ,exclusions ,a contract that would 
otherwise be an investment contract     
under this paragraph is not an          
investment contract if the obligee of   
that contract-- 7i7 as of the date on   
which the contract became effective1    
primarily expected profit from          
performance of the contract2 and  7ii7  
7,i7 at a date after the date described 
in clause 7i7-- 7aa7 primarily expects  
to consume goods or services associated 

with the contract2 or  7bb7 no longer   
expects profit primarily from the       
managerial or entrepreneurial efforts of
 the sponsor described in subparagraph  
7,a77i7 with respect to the contract4   
7#h7 ,office ,the term ,office means the
 ,office of ,domestic ,finance of the   
,department of the ,treasury4  7#i7     
,under ,secretary ,the term ,under      
,secretary means the ,under ,secretary  
of the ,treasury for ,domestic ,finance4
  #c4 ,requirements for digital         
exchanges regarding treatment of        
customer assets  7a7 ,required standards
 and procedures ,each digital exchange  
shall establish baseline accounting     
standards and procedures that are       
designed to protect and ensure the      
safety of covered assets of customers of
 the exchange4  7b7 ,holding of customer
 assets  7#a7 ,in general ,each digital 
exchange shall hold the covered assets  
of each customer of the exchange in a   
manner that minimizes-- 7,a7 the risk of
 loss by the customer of any such       

covered asset2 and  7,b7 any delay in   
the customer accessing any such covered 
asset4  7#b7 ,segregation of funds  7,a7
 ,in general ,each digital exchange     
shall treat and deal with all covered   
assets of a customer of the exchange    
that are received by the exchange as    
belonging to the customer4  7,b7        
,co-mingling prohibited ,except as      
provided in subparagraph 7,c71 with     
respect to any covered asset of a       
customer of a digital exchange1 the     
exchange may not-- 7i7 co-mingle that   
covered asset with assets that are not  
covered assets2 or  7ii7 use that       
covered asset to margin1 secure1 or     
guarantee any trade or account of any   
person other than the customer for which
 that item is held4  7,c7 ,exceptions   
7i7 ,in general ,a digital exchange may1
 for convenience1 co-mingle and deposit 
a covered asset of a customer of the    
exchange in the same account as funds of
 the exchange with any bank1 trust      
company1 or qualified digital custodian4

  7ii7 ,withdrawal ,a digital exchange  
may withdraw from a bank1 trust1 or     
digital wallet account such share of a  
covered asset of a customer of the      
exchange as may be necessary in the     
ordinary course of business to margin1  
guarantee1 secure1 transfer1 adjust1 or 
settle a transaction regarding a digital
 asset or digital commodity with another
 digital exchange1 including for the    
payment of a commission1 a brokerage    
fee1 interest1 taxes1 storage costs1 or 
any other charge that lawfully accrues  
in connection with a digital commodity  
transaction4  7iii7 ,substitution ,a    
customer may explicitly consent to a    
digital exchange substituting covered   
assets of the customer with certain     
other assets4  7c7 ,enforcement  7#a7   
,in general ,if1 in the process of      
reviewing a report submitted to the     
,under ,secretary under section #d7;b7  
with respect to a digital exchange1 the 
,under ,secretary discovers that the    
digital exchange has violated a         

provision of this section1 the ,under   
,secretary1 through the ,office1 shall  
impose a civil penalty on the digital   
exchange in the manner described in     
clauses 7i71 7ii71 and 7iii7 of section 
#d7;c77#a77;,a7 7subject to paragraph   
7#b7 of this subsection74  7#b7 ,rule of
 construction ,for the purposes of a    
civil penalty imposed under paragraph   
7#a7-- 7,a7 an entity that is subject to
 the requirements of section #d7;a71 as 
described in section #d7;c77#a77;,a71   
shall be deemed to be an entity that is 
subject to the requirements of this     
section2 and  7,b7 the failure of an    
entity to satisfy the requirements of   
section #d7;a71 as described in section 
#d7;c77#a77;,a71 shall be deemed to be a
 failure to satisfy the requirements of 
this section4  #d4 ,attestation         
requirements  7a7 ,attestation  7#a7 ,in
 general ,not later than #cj days after 
the effective date of this section1 and 
monthly thereafter1 each digital        
exchange and each digital custodian     

shall obtain from an independent        
auditing firm an attestation that the   
applicable entity has proof of reserves1
 which shall be accompanied by          
appropriate evidence demonstrating proof
 of those reserves1 as described further
 in subsection 7b74  7#b7 ,inability to 
obtain services of auditing firm  7,a7  
,in general ,a digital exchange or      
digital custodian may contract with1 or 
otherwise obtain the services of1 a     
disinterested third party to carry out  
the responsibilities of an independent  
auditing firm under paragraph 7#a7 only 
if the digital exchange or digital      
custodian is unable to contract with1 or
 otherwise obtain the services of1 an   
independent auditing firm to carry out  
those responsibilities4  7,b7           
,applicability ,if a digital exchange or
 digital custodian contracts with1 or   
otherwise obtains the services of1 a    
disinterested third party as described  
in subparagraph 7,a71 that third party  
shall be subject to the requirements of 

this section to the same extent as an   
independent auditing firm carrying out  
the responsibilities described in       
paragraph 7#a74  7#c7 ,industry standard
  7,a7 ,solicitation of standard ,not   
later than #ij days after the date of   
enactment of this ,act1 the ,public     
,company ,accounting ,oversight ,board  
and the ,american ,institute of         
,certified ,public ,accountants shall   
jointly issue a request for public      
comment soliciting proposals from the   
digital asset industry regarding a      
standard for the attestations required  
under this section4  7,b7 ,establishment
 of advisory committee ,after the       
expiration of the #ij-;day period       
described in subparagraph 7,a71 the     
,public ,company ,accounting ,oversight 
,board and the ,american ,institute of  
,certified ,public ,accountants shall   
establish an advisory committee that    
shall be comprised of the entities that 
submit proposals under that             
subparagraph4  7,c7 ,creation of        

standard ,the advisory committee        
established under subparagraph 7,b7     
shall-- 7i7 create a proposed standard  
for the purposes described in           
subparagraph 7,a72 and  7ii7 submit to  
the ,public ,company ,accounting        
,oversight ,board and the ,american     
,institute of ,certified ,public        
,accountants the proposed standard      
described in clause 7i7 for approval of 
the proposed standard by those entities4
  7,d7 ,approval of standard  7i7 ,in   
general ,not later than #ah months after
 the date of enactment of this ,act1 the
 ,public ,company ,accounting ,oversight
 ,board and the ,american ,institute of 
,certified ,public ,accountants shall   
jointly approve a proposed standard     
submitted to those entities under       
subparagraph 7,c74  7ii7 ,extension of  
deadline ,if1 as of the date that is #ah
 months after the date of enactment of  
this ,act1 the ,public ,company         
,accounting ,oversight ,board and the   
,american ,institute of ,certified      

,public ,accountants have not issued a  
joint approval described in clause 7i71 
the #ah-month deadline described in that
 clause with respect to that approval   
shall be extended by consecutive        
#ahj-;day periods until the date on     
which those entities issue such an      
approval4  7b7 ,reports  7#a7 ,in       
general ,an auditing firm that prepares 
an attestation under subsection 7a7 with
 respect to an entity shall1 after      
making the attestation1 submit to the   
,under ,secretary a report that         
addresses the following with respect to 
the entity3 7,a7 ,cryptographic proof of
 possession or control over keys that   
are capable of effectuating the         
transfer1 change of control1 or movement
 of a chain of assets that are owned by 
a person other than that entity1 such as
 a customer of the entity4  7,b7        
,verification of cryptographic proof of 
reserves of the entity4  7,c7 7i7       
,verification of cryptographic proof of 
the liabilities of the entity4  7ii7    

,for the purposes of clause 7i71        
cryptographic proof means a             
cryptographically verifiable attestation
 using a ,merkle tree structure1 a      
zero-knowledge proof1 or another similar
 mechanism that can prove-- 7,i7 the    
existence of the applicable liabilities2
 and  7,,ii7 that the applicable        
liabilities are the legal responsibility
 of the entity that is the subject of   
the report4  7#b7 ,public availability  
,the ,under ,secretary1 through the     
,office1 shall make each report received
 under paragraph 7#a7 available to the  
public1 which shall include1 in addition
 to the material described in           
subparagraphs 7,a71 7,b71 and 7,c7 of   
that paragraph-- 7,a7 the name of the   
entity for which the attestation that is
 the subject of the report was          
performed2 and  7,b7 the name of the    
auditing firm that made the attestation 
described in subparagraph 7,a7 of this  
paragraph4  7c7 ,enforcement  7#a7      
,civil penalties  7,a7 ,in general ,with

 respect to an entity that is subject to
 the requirements under subsection 7a7  
and fails to satisfy those requirements1
 the ,under ,secretary1 through the     
,office1 shall1 subject to subparagraph 
7,b71 impose a civil penalty on the     
entity as follows3 7i7 ,if that failure 
is the only such failure by the entity  
during the most recent #bd-month period1
 the amount of the penalty shall be the 
greater of the following3 7,i7 #be cents
 per user or customer of the entity 7as 
applicable71 as of the date on which the
 penalty is imposed4  7,,ii7 #b4e basis 
points of the total assets under        
management by the entity1 as of the date
 on which the penalty is imposed4  7ii7 
,if the entity has #a additional such   
failure during the most recent #bd-month
 period1 the amount of the penalty shall
 be the greater of the following3 7,i7  
#ee cents per user or customer of the   
entity 7as applicable71 as of the date  
on which the penalty is imposed4  7,,ii7
 #e4e basis points of the total assets  

under management by the entity1 as of   
the date on which the penalty is        
imposed4  7iii7 ,if the entity has more 
than #a additional such failure during  
the most recent #bd-month period1 the   
amount of the penalty shall be the      
greater of the following3 7,i7 #ij cents
 per user or customer of the entity 7as 
applicable71 as of the date on which the
 penalty is imposed4  7,,ii7 #i basis   
points of the total assets under        
management by the entity1 as of the date
 on which the penalty is imposed4  7,b7 
,limitation ,the ,under ,secretary1     
through the ,office1 may not impose a   
penalty on an entity under subparagraph 
7,a7 if the imposition of that penalty  
would cause the total amount of         
penalties imposed on that entity under  
that subparagraph for the year in which 
the penalty would be imposed to exceed  
the lesser of the following3 7i7 #a per 
user or customer of the entity 7as      
applicable71 as of the date on which the
 penalty would be imposed4  7ii7 #aj    

basis points of the total assets under  
management by the entity1 as of the date
 on which the penalty would be imposed4 
7#b7 ,publication ,the ,under           
,secretary1 through the ,office1 shall  
make publicly available1 with respect to
 the most recent #bd-month period1 the  
name of each entity that is subject to  
the requirements under subsection 7a7   
and has failed to satisfy those         
requirements4  7#c7 ,appeals  7,a7 ,in  
general ,the ,under ,secretary shall    
establish a process through which an    
entity on which a penalty is imposed    
under paragraph 7#a7 may appeal that    
penalty4  7,b7 ,waiver of penalty ,the  
,under ,secretary shall waive a penalty 
imposed under paragraph 7#a7 if the     
,under ,secretary determines in an      
appeal brought under subparagraph 7,a7  
of this paragraph that the reason that  
the ,under ,secretary did not receive a 
report under subsection 7b77#a7 is      
because of an action or omission by an  
auditing firm and not the entity on     

which the ,under ,secretary imposed the 
penalty4  7,c7 ,pause in payment ,an    
entity on which the ,under ,secretary   
imposes a penalty under paragraph 7#a7  
shall not be required to pay that       
penalty during the period in which an   
appeal brought by the entity under this 
paragraph is pending4  7d7 ,effective   
date ,this section shall take effect on 
the date on which the ,public ,company  
,accounting ,oversight ,board and the   
,american ,institute of ,certified      
,public ,accountants jointly approve1   
under subsection 7a77#c71 an industry   
standard for the attestations required  
under this section4