Challenges to be solved

Each of these items will be discussed in more detail in the Implementation guide for VASPs guide.

Challenges

  • As an originator VASP, how can I capture the benficiary (intended recipient) information for a given withdrawal?

  • For a given deposit or withdrawal, who owns the source/destination address?

    • Is it a hosted or unhosted wallet?

    • If hosted, which VASP owns it?

      • Can the VASP prove ownership?

      • Is the VASP a known entity (Know Your VASP)

      • In what jurisdiction does the VASP operate?

      • What are the VASPs' requirements with respect to travel rule?

      • What protocols does the VASP support for data exchange?

    • If unhosted, can the owner (/controller) prove ownership?

These can be summarized into two buckets:

  1. Provable address ownership

  2. Data exchange between VASPs

Another major challenge is global coordination amongst market participants and ensuring interop between solutions being developed. The current direction of travel points to multiple, incompatible solutions and a fragmented ecosystem.

Solutions being proposed

Below are some of the solutions to the challenges that have been proposed.

As an originator VASP, how can I capture the benficiary (intended recipient) information for a given withdrawal?

  • Ask the originator (sender) to enter the info when submitting a withdrawal request

  • Request the beneficiary VASP to share the info and ask the originator to confirm that info is correct (without displaying full information)

Is a wallet hosted or unhosted?

  • Ask the user (low impact change to UX)

  • Check blockchain analytics first, then resort to asking the user if that proves inconclusive

For a hosted wallet, which VASP owns it?

  • Encode within a LNURL

  • Post the address to a "bulletin board" and wait for a claim response

  • Ask the user for a VASP identifier, e.g. a VASP code, DID, (v)LEI, etc.

Is the VASP a known entity (Know Your VASP)

Several global verified VASP directories have been established, including:

In addition, existing service providers are beginning to offer Know Your VASP services:

What protocols does the VASP support for data exchange?

Several protocols have emerged, each with their own nuances and authentication methods. Theses include:

Knowing which protocol(s) a VASP supports and what their data endpoints are is critical to enabling data exchange between VASPs.

If unhosted, can the owner prove ownership?

Unhosted Wallet Verification Methods: An Overview

Closing remarks

Some or all of the above may not be relevant depending on the approach a VASP takes with respect to the travel rule. For example, a VASP could opt to no-longer transact with other VASPs and instead have customers fund their accounts from, and withdraw to, unhosted wallets.

This will be covered in more detail in the Implementation guide for VASPs.