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Centralized cryptocurrency exchanges, which manage annual trading volumes on the scale of trillions of US dollars worldwide, are classified as virtual asset service providers (VASPs). They facilitate the exchange, custody, and transfer of cryptoassets organized in wallets across distributed ledger technologies (DLTs). As any corporation, VASPs can become insolvent.
Despite the public availability of DLT transactions, their cryptoasset holdings are not yet subject to systematic auditing procedures. In this paper, we propose an approach to assess the solvency of a VASP by cross-referencing data from three distinct sources: cryptoasset wallets, balance sheets, and supervisory entity data.
We investigate 24 VASPs registered with the Financial Market Authority in Austria. Regulatory data insights show that their yearly incoming and outgoing transaction volume amounts to 2 billion EUR for 1.8 million customers; the financial services they provide position them closer to brokers, money exchanges, and funds, rather than banks.
Next, we empirically measure DLT transaction flows of four VASPs and compare their cryptoasset holdings to balance sheet entries. Data are only partially consistent; this enables us to identify gaps in the data collection and propose strategies to address them, towards achieving a more systematic, reliable, and automated assessment of VASPs solvency.
P. Saggese, E. Segalla, M. Sigmund, B. Raunig, F. Zangerl, B. Haslhofer, Assessing the Solvency of Virtual Asset Service Providers: Are Current Standards Sufficient?, Working Paper Series of the OENB 248 (2023).