The PROOF Act (Proving Reserves Of Others' Funds Act) is a new law that requires cryptocurrency exchanges and digital asset custodians to prove they actually have the customer money and assets they claim to hold. Here's what it does in plain terms: Every month, digital exchanges and custodians must hire an independent auditor to verify they possess all the customer funds and digital assets on their books. The auditor then submits a detailed report to the Treasury Department showing cryptographic proof that the company controls the assets and that customer funds match what the company says it owes. These reports become public so customers can see which exchanges have been verified.

The law also sets strict rules for how exchanges must handle customer money. Exchanges cannot mix customer funds with their own money (except temporarily for normal business operations), and they absolutely cannot use customer assets to cover their own trades or debts. If an exchange violates these rules, it faces financial penalties ranging from 25 cents to 90 cents per customer (or up to 10 basis points of total assets), depending on how many violations occurred in the past two years. The law essentially creates a monthly "proof of reserves" requirement designed to prevent situations like the FTX collapse, where an exchange secretly used customer funds for risky bets and couldn't cover the losses.