Assessing VASP Solvency For Cryptoassets: Conclusions, and References

Table of Links

Abstract and 1. Introduction

2. Background and related literature
3. VASPs: A Closer Examination
4. Measuring VASPs Cryptoasset Holdings
5. Closing The Data Gap
6. Conclusions, Declaration of Competing Interest, and References

Appendix A. Supplemental material

6. Conclusions

In this work, we investigate 24 VASPs registered with the Austrian Financial Market Authority (FMA) at the end of 2022. We aim to provide an empirical approach to assess their solvency status, by measuring their cryptoasset holdings across time and distributed ledgers. To do so, we cross-reference data from three distinct sources: publicly auditable cryptoasset wallets, balance sheet data from the commercial register, and information from supervisory entities. We begin by describing the financial services they offer, the virtual assets they support, and compare them to conventional financial intermediaries. Their core financial activity can be compared to money exchanges, brokers, and funds, rather than to commercial banks. Furthermore, we provide regulatory data insights showing that their yearly incoming and outgoing transaction volume in 2022 amounted to 2 billion EUR for around 1.8 million users.

Next, we implement address clustering algorithms and entity identification techniques to reconstruct their cryptoasset flows on the Bitcoin and Ethereum blockchains and compare their net positions to balance sheet data from the commercial register. We focus on four VASPs for which we could gather information both on their cryptoasset transactions and balance sheets. These four entities cover around 99% of the Austrian VASP transaction volumes measured in total assets. With our approach, we find proof, for two VASPs out of four, that they control enough assets to fulfill liabilities and obligations against customers, i.e., they meet the capital requirements, while we could not collect enough data for the remaining two.

Then we discuss the data collection-related issues and suggest solutions towards better assessing a VASP solvency. In particular, we remark that any entity in charge of auditing requires proof that a VASP actually controls the funds associated with its on-chain wallets. It is also important that a VASP reports fiat and crypto asset and liability positions, broken down by asset types at a reasonable frequency.

In conclusion, our approach highlights the need to address the identified data gaps in the current data collection process and provides a starting point for developing more effective strategies to systematically assess the solvency status of virtual asset service providers.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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