VASP (Virtual Asset Service Provider) is an entity that facilitates services involving cryptocurrencies or digital assets on behalf of others.

The Bridge to the Traditional Financial World

The term VASP was first introduced by the Financial Action Task Force (FATF), an international organization that sets standards for anti-money laundering. In essence, a VASP is any business that helps a user to buy, sell, trade, or transfer digital assets. This includes centralized exchanges, wallet providers, and other services that custody or manage digital assets.

VASPs are a key part of the regulatory framework for crypto. They are required to comply with financial regulations such as AML and KYC. This means they must verify the identity of their users and monitor their transactions for any suspicious activity. This is done to prevent criminals from using cryptocurrency for illicit purposes.

Why VASPs are a Crucial Part of the Ecosystem

VASPs act as a bridge between the traditional financial system and the crypto world. They provide a high degree of user-friendliness, customer support, and regulatory compliance that is often lacking in decentralized platforms. For new users, VASPs provide a safe and familiar entry point into the crypto space.

However, a VASP's reliance on a central authority runs counter to the core principles of decentralization. While a VASP offers a convenient experience, a user must entrust their assets to a third party, which introduces a risk of a single point of failure. This is why many experienced users prefer to self-custody their funds in a non-custodial wallet.