We live in a world of service providers: health service providers, cloud service providers, internet service providers — the list goes on. And when we’re talking about cryptocurrency, virtual asset service providers (VASP) are inevitably part of the conversation.
Just what exactly is a VASP? And why should you know about them if you’re interested in cryptocurrency? This article will cover everything you need to know.
What are Virtual Assets (VAs)?
• It’s a digital store or representation of value.
• It can be digitally traded or transacted, or used for payment or investment.
• It doesn’t include a digital representation of fiat currency or securities.
Virtual assets that can be traded or exchanged require a medium upon which those trades can be executed. That’s where VASPs come into play.
What is a Virtual Asset Service Provider (VASP)?
A VASP is a platform used to buy, sell, exchange, or otherwise interact with the cryptocurrency market. In other words, VASPs are crypto exchanges — or, at least the framework and theory behind a digital currency exchange.
The acronym “VASP” was coined by the FATF, which is an intergovernmental, international body that shores up standards and regulations — or promotes the use of them — in an effort to curb money laundering and stop the financing of terrorism.
Given that different types of virtual currency can and may be used for illicit or illegal activities, the FATF is stepping in to create some rules and frameworks for entities in the crypto space to operate within. Just as many cryptocurrency platforms must abide by existing regulations and compliance protocols, they may also be subject to additional guidelines and scrutiny from the FATF.
What Makes VASPs Unique?
In order for an organization to be classified as a VASP, it must tick certain boxes. In guidance issued in June 2019, the FATF asserted that a VASP is a business that conducts at least one of the following activities:
• Acts as an exchange for virtual assets or fiat currencies
• Acts as an exchange between one or more types of virtual assets
• Acts as a medium of transfer for virtual assets
• Provides safekeeping or administration of instruments that allow entities to control virtual assets
• Participates in or provides financial services related to an offer or sale of a virtual asset
What Are Some VASP Types?
The FATF guidelines clearly describe crypto exchanges, as well as other participants in the crypto markets, including:
• Mining pools
• Investment vehicles
• Digital wallet providers
• Companies offering escrow services (transferring digital assets between two parties, ensuring a transaction goes down smoothly). And yes, companies providing these services may be classified as VASPs, after the FATF expanded and clarified its definition of a VASP in.
In an early 2021 update , the FATF also stated that decentralized exchanges, decentralized platforms, and DApps may also be considered VASPs, as well as platforms that facilitate peer-to-peer crypto transactions.
Recommended: What is a dApp?
What Businesses are Not VASPs?
There are numerous types of crypto-related entities that are not VASPs, including but not limited to:
• Individual crypto miners
• Individuals participating in a Bitcoin mining pool
• Individual traders
• Central banks
In short, if you’re just a regular Joe who’s trading or otherwise participating in the crypto markets or validating a blockchain network, you’re not a VASP.
Other Key Terms to Know When Talking About VASPs
In order to get a full picture of VASPs, it’s important to understand a couple of other terms: Digital Asset Entity (DAE), and Digital Asset Customer (DAC).
The distinction between these specific types of entities — which may exist in more than one type of classification (an entity could be both a DAE and a VASP, for instance) — can have an impact on how the entity is regulated.
What is a Digital Asset Entity (DAE)?
A Digital Asset Entity refers to some of the various businesses and organizations in the digital transaction space. For example, a VASP is a DAE. But the DAE umbrella includes many other types of organizations, such as gambling platforms, that may not necessarily be labeled as traditional financial institutions.
What is a Digital Asset Customer (DAC)?
A Digital Asset Customer is an entity that makes use of the services of a DAE. You or anyone else can be a DAC, as you may utilize a financial institution’s services to engage with the cryptocurrency markets.
What Are Some Examples of VASPs?
There are several different types of businesses or platforms that can fit the description of a VASP, or that may take some role in the transaction process. Those can include centralized and decentralized exchanges, mining pools, investment vehicles, and more.
Here are some examples of companies or platforms that fit the description of a VASP:
• Investment vehicles: Crypto-tied investment vehicles, which may take the form of securities like crypto ETFs, are becoming more common and mainstream. One example: BITO , a Bitcoin-linked ETF that hit stock exchanges in October 2021.
VASPs are businesses or companies that facilitate the exchange of virtual assets. Virtual assets can include things like cryptocurrency (Bitcoin, for example), non-fungible tokens (NFTs), or utility tokens.
Photo credit: iStock/Yuri_Arcurs
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