Your VASP license won’t save you anymore

Opinion by: Louis Bellet, CEO of Yellow Network

Crypto.com just bought an Australian broker license.

Finally.

For anyone paying attention, this isn’t just another headline about mergers and acquisitions in crypto — it is the validation of something pretty obvious. You can’t protect retail investors with just a virtual asset service provider (VASP) license and some nice-looking compliance policies.

Recent years have shown us exactly why this matters.

FTX’s collapse exposed the fundamental dangers of exchanges that try to be everything to everyone — marketplace, custodian, market maker, token issuer, etc. — while operating with minimal regulatory oversight. Billions in client assets vanished because the industry accepted the fiction that basic broker-dealer regulations somehow don’t apply to crypto.

Let’s not keep crypto on the fringes

Let’s be honest about the current state of crypto trading. Memecoins are marketed like lottery tickets. Influencers shill tokens without disclosing payments. Exchanges hide behind VASP registrations while allowing manipulated markets to operate.

This approach is not the path to mainstream adoption. Rather, it’s a recipe for keeping crypto on the fringes of finance.

Recent: Crypto compliance ‘no longer optional’ under Australia’s new draft guidelines

Traditional finance isn’t perfect. In fact, it’s far from it. But try pulling off a pump-and-dump scheme on the New York Stock Exchange. Launch a fake stock, run a bogus initial public offering with made-up financials, and vanish with everyone’s money.

You can’t. By design, the infrastructure won’t let you.

 Perhaps more importantly, when things do go wrong in traditional markets, investors get repaid first.

Try finding that protection at your favorite VASP-licensed exchange.

Your license is not enough

In crypto, we see this level of fraud regularly, enabled by exchanges hiding behind VASP registrations or e-money provider status like it’s some kind of shield. 

“We’re just providing technology services!” they claim. This approach might have made sense in crypto’s early days, but it’s inadequate for today’s market size and complexity.

The VASP and e-money approach is fundamentally broken for actual trading. When registered as a VASP, you say you move digital assets around.

That’s it.

There is no real responsibility for market integrity. There are no severe requirements for asset segregation. There are no meaningful protections against market manipulation. No controls on misleading advertisements. No evaluation of investor profiles to prevent exploitation.

Want to run a serious trading operation? You need a broker license. Full stop.

The technical problems are just as severe as the regulatory ones. Look at how exchanges handle crosschain trading right now. They’re either running their own bridges, which have lost over billions of dollars to hacks, or forcing users to go through third-party bridges that create additional points of failure. It’s all because they’re trying to patch the lack of proper broker infrastructure.

The need for infrastructure

Here’s what proper broker infrastructure looks like: client asset segregation, real-time risk management, crosschain trading without exposing users to bridge risks, and actual compliance with securities laws. To most people, it’s boring stuff. However, the boring stuff keeps people from losing their life savings.

We need some of this infrastructure — not because it’s sexy, but because it’s necessary. Technology alone isn’t enough. You need the proper regulatory framework, too.

Think about traditional brokers for a second. When you open an account at Fidelity or Charles Schwab, you’re protected by actual regulations with actual teeth. Your assets are segregated. The broker has to maintain certain capital levels. They can’t just gamble with your money or front-run your trades.

Mention these requirements to a crypto exchange running on a VASP license, and they may give you a hundred excuses. “We’re different!” No, you’re not. “Blockchain makes traditional regulations obsolete!” No, it doesn’t. “Our smart contracts protect users!” The $3.8 billion lost to crypto hacks in 2022 suggests otherwise.

The solutions aren’t complicated — they’re just hard work that few people want to do.

It starts with getting proper broker licenses in every jurisdiction where you operate. Yes, it’s expensive. Yes, it’s time-consuming. Do it anyway. From there, exchanges must build or use infrastructure enabling proper broker operations: real-time settlement, crosschain trading without bridge risks, and actual risk management systems.

Being a “technology provider” doesn’t absolve you of responsibility for protecting retail investors.

Real progress in crypto will come from building better infrastructure, not from finding creative ways to dodge regulations.

We are seeing some progress. Crypto.com’s move is a good start.

Legitimate brokers are entering the space with proper licenses and infrastructure, and regulators are finally cracking down on the VASP nonsense.

But we still need more.

The choice facing crypto exchanges is simple: Evolve into properly licensed brokers with actual infrastructure or become irrelevant. The era of hiding behind weak VASP registrations while pretending to be a serious trading venue is ending.

The technology exists. The regulatory frameworks exist. We need the industry to step up and do things right.

Using proper broker licenses and purpose-built infrastructure is essential to building the future of finance. It isn’t a matter of checking the box on bare minimum regulatory requirements that, in many jurisdictions, remain far from fit for purpose. It’s about building a crypto trading ecosystem that’s actually safer than traditional finance, not more dangerous.

That needs to change.

 Your move, crypto exchanges. Actual broker licenses or bust.

Louis Bellet is the co-founder of Yellow Network and a serial entrepreneur in fintech and crypto.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.