"Assets Sleeping for Three Years" Will Be Confiscated? Understand the Truth Behind California's New Bill SB 822 in One Article

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Author | Ethan (@ethanzhang_web3)

Recently, discussions in the crypto community about “California officially confiscating dormant exchange accounts” have intensified. But don’t panic; upon closer examination, you’ll find this is actually a delayed reaction to an “old news” story.

The bill known as SB 822 was signed into law by California Governor Newsom as early as October 2025 and will take effect in 2026. Essentially, it replicates the “Dormant Account Management System” (officially called the Unclaimed Property Law, or UPL Act), which has been in operation in traditional banking systems for decades, into the crypto world.

However, there is a lot of misunderstanding and panic in the community. Many believe that simply “holding coins without moving them” will lead to confiscation. Odaily Planet Daily aims to clarify in this article: Who does this law govern, and who does it not? Is the so-called “regulatory takeover” a trap or protection? As ordinary investors, how can we operate simply to securely protect our coins?

Core Mechanism: How does the “Three-Year Rule” work when “HODL” turns into “Lost Contact”?

According to SB 822, if a digital asset account has no “ownership activity” within three years, and communications from the exchange are returned or undeliverable, the asset will be considered “unclaimed” and trigger a transfer process.

This sounds frightening, as if just holding long-term with “diamond hands” would lead to assets being seized. But that’s not the case. The law’s definition of “ownership activity” is extremely broad, which actually provides the first layer of protection for active users.

Text of SB 822

“Ownership activity” is not limited to on-chain transfers or token swaps. According to the bill, the following actions are considered proof that you still control the account, and can directly reset the three-year countdown:

Logging into the account: Even just opening the app to check your balance or logging in via the web counts as “electronic access,” enough to reset the timer.

One-time or regular transactions: Whether buying, selling, depositing, or withdrawing fiat currency, or even an automatic deduction from a recurring investment plan set years ago, all count as activity.

Cross-account activity: If you hold multiple accounts within the same exchange (e.g., spot account and investment account), any activity on one account will be considered active for the others.

Simple communication: Sending a customer service email or clicking a confirmation link in response to an exchange inquiry also counts as “ownership activity.”

This means that unless you completely lose contact—no login, no trading, ignoring all emails and notifications—your assets will not be transferred without warning.

Is there a warning before confiscation?

To prevent assets from being automatically confiscated due to user forgetfulness, SB 822 establishes a clear mandatory notification process.

The law requires exchanges, as asset holders, to send notices to users 6 to 12 months before reporting assets to the state government. These notices are not ordinary user agreement updates; they must meet strict legal formatting requirements, prominently displaying in bold: “California requires us to notify you that if you do not contact us, your unclaimed property may be transferred to the state.”

Text of SB 822

Additionally, the notice must include a form prescribed by the State Controller’s Office. Users can fill out and return this form, or contact the exchange via phone or online customer service to confirm their identity. Doing so will immediately解除 the dormant status, and the three-year countdown will reset.

Common misconception: Does transfer equal “liquidation”?

Before SB 822 was implemented, the community’s biggest concern was that assets transferred to the government would be forcibly sold like traditional securities. However, SB 822 explicitly prohibits immediate forced liquidation, making California the first state in the U.S. to legislatively protect unclaimed crypto assets from being transferred “as is,” including the assets themselves and their private keys.

To achieve this, the bill even specifies how to handle “private keys.” If an exchange only holds part of the private key (e.g., multi-signature wallets), the law requires attempting to obtain the remaining keys within 60 days; if unable, the exchange must continue maintaining the assets until transfer conditions are met, technically avoiding asset loss.

Furthermore, once assets enter the state’s regulatory account, they will enjoy an 18 to 20-month protection period. During this time, the state generally will not sell the assets, and the original owner can still apply to recover the original amount of tokens. Only after the protection period ends does the state have the authority to liquidate them.

Who will safeguard the assets?

Faced with the large demand for digital asset custody, SB 822 authorizes the State Controller to select one or more “qualified custodians” to manage these assets. These custodians must hold valid licenses issued by the California Department of Financial Protection and Innovation (DFPI) and meet a series of strict standards, including:

Security level: Must have top-tier cybersecurity measures and private key management capabilities.

Compliance status: Must meet the “financial institution” qualifications under the Bank Secrecy Act, with anti-money laundering obligations.

Industry experience: Proven experience in handling digital assets (e.g., Coinbase Custody or Anchorage Digital).

Are cold wallets affected?

In community discussions, many experienced players are most concerned about whether cold wallets with private keys under their control are affected, or whether LP tokens on Uniswap are impacted.

The answer is clear: not affected.

The law’s regulatory scope targets “holders”—i.e., third-party centralized entities that control assets. Self-custody wallets, where users hold their private keys directly, do not involve third parties that can report or transfer assets to the government. As long as the private keys are in your own possession, the assets are outside the scope of this law.

Additionally, the law makes a precise distinction for “digital financial assets,” explicitly excluding gaming virtual currencies, business points (like airline miles), and tokens registered as securities with the SEC, avoiding regulatory overreach.

Practical guide: How to recover assets that have been transferred?

As mentioned earlier, even if assets are transferred to the state, the original owner and their lawful heirs retain property rights, and there is no time limit for filing claims with the California State Controller’s Office. The outcome depends on when the claim is made: if before the assets are liquidated (i.e., within 18-20 months after government receipt), the owner can recover the original amount of cryptocurrency; if after liquidation, only the net proceeds from sale can be recovered.

Be aware that, with the law in effect, scam intermediaries may appear offering to handle claims. The official channel for inquiries and claims is the California State Controller’s Office website (sco.ca.gov), which is free of charge. Any request for prepayment of fees to unfreeze assets is a scam.

How to avoid custodial risks?

The key to avoiding SB 822 risks is to periodically break account silence. Since the trigger requires “no activity for three consecutive years,” long-term holders can simply perform basic ownership actions regularly. For example, log into the exchange account once a year, check the balance, or make a tiny transaction. These actions will be recorded as activity, resetting the three-year countdown.

For users holding large amounts, the most thorough solution is to transfer assets to a non-custodial wallet. Once assets leave the exchange and are stored in a private key-controlled cold wallet, they no longer fall under the “custodied assets” definition in the law, thus avoiding unclaimed property regulations altogether. This also helps prevent risks of platform misappropriation or collapse (think of the FTX lesson).

Another often overlooked aspect is estate planning. Many assets become “unclaimed” because the holder unexpectedly passes away, and family members are unaware of the digital wealth. SB 822 objectively provides an administrative safety net for these lost digital assets. To be responsible for your family’s wealth, it’s advisable to prepare a memorandum detailing asset locations and inform family members, so that in extreme cases, they can retrieve and recover these digital inheritances through official channels.

Conclusion: A double-edged sword of compliance

The enactment of SB 822 is undoubtedly another milestone in the mainstreaming of crypto assets. It grants digital assets the same legal status as bank deposits and stocks, especially providing special protections against forced liquidation. This move also indicates that regulators are actively recognizing the unique properties of crypto assets and are seeking a balance between protecting consumers and adapting to technological features.

At first glance, the state’s actions may seem like “meddling,” but a deeper look reveals it is a strong constraint on third-party custodial powers. Without a mature legal rights confirmation mechanism, large amounts of long-sleeping wealth due to forgetfulness, accidents, or user disconnection could ultimately become the private property of exchanges.

SB 822, through administrative safety nets, has built a permanent “Lost and Found” for digital assets, successfully bringing back personal wealth that might otherwise vanish if platforms shut down, into the realm of legal protection.