The digital asset industry is nascent, but continuing to develop at a rapid pace. As companies grow and represent greater parts of the ecosystem, it is increasingly important to identify company and counterparty risk wherever possible.
Less than 2% of Virtual Asset Service Providers achieve the highest ratings in comprehensive Lukka Score analysis
Institutional interest in crypto is accelerating and Lukka’s analysis provides informative data on compliance and security standards among service providers. The data presents a factual picture of the current landscape, offering actionable insights for market participants, particularly for their Compliance and Finance departments.
VASPs Compliance Data
Lukka tracks over 7,500 Virtual Asset Service Providers (VASPs) across more than 150 data points, creating a comprehensive dataset of the digital asset trading venues.
The analysis by Lukka shows that 1.25% of venues achieve an ‘A’ grade. Data indicates that 0.6% earn the A1 score.
The data shows that 23.5% of all VASPs are categorized in the F tier, representing the lowest bracket in the assessment framework. The findings provide numerical insights into the distribution of assessments across the VASP ecosystem.
| Risk Rating | Percentage of VASPs | Risk Level | Institutional Consideration |
|---|---|---|---|
A1 |
0.6% |
Potentially minimal risk |
Suitable for consideration |
A |
1.25% |
Potentially low risk |
May be suitable for consideration |
B to D |
75.25% |
May involve moderate to high risk |
Case-by-case assessment |
F |
23.5% |
Lowest tier |
Likely unfit for institutional use |
For financial institutions that work with regulated counterparties, these numbers provide data points for consideration. The distribution indicates varying levels of risk management practices across the digital asset market.
VASP Assessment Methodology
The VASP assessment methodologies in the market collect data on digital asset service providers daily across multiple dimensions, tracking over 150 unique data points for each entity.
Data Collection Framework
Lukka’s Marketplace and Custodian Data standardizes metadata about venues and issues standard identifiers for them, organizing information about entities operating in the digital asset ecosystem. The framework collects data across several categories:
| Assessment Category | Select Data Points | Relevance |
|---|---|---|
Custodian Security |
• Supports MPC
• Supports Cold Storage
• Conducts Security Audits
• Supports Multi-Sig |
Essential for asset protection |
Operational Details |
• Supports Institutional Entities
• Supports Lending
• Conducts Staking
• Supports APIs |
Determines service flexibility |
Regulatory Details |
• Regulatory License
• Licensee Legal Entity |
Key for compliance assessment |
Compliance Measures |
• Conducts KYC
• Has Digital Insurance
• Conducts AML |
Essential for regulatory alignment |
Supported Assets |
• Lukka Asset ID (LID)
• Start Timestamp |
Impacts exposure profile |
This structured approach enables data collection on security, compliance, and technology standards for crypto entities in a standardized format, allowing for systematic comparison.
Multi-Dimensional Data Collection
The methodology collects data across several additional dimensions:
Regulatory information includes licensing status across various jurisdictions, with data collected on the different regulatory regimes. The system tracks which venues hold licenses in jurisdictions with robust oversight versus those with less developed regulatory frameworks.
Operational data includes information on disclosure practices, ownership structures, and governance frameworks. The system collects data on corporate structures and operational visibility.
Security information includes historical incidents and security controls. Data collection covers breach history, organizational responses, and technical safeguards implemented.
Compliance data extends beyond KYC procedures to include information on anti-money laundering processes. This encompasses sanctions screening methodologies, transaction monitoring capabilities, and suspicious activity reporting frameworks.
Market data includes trading patterns, liquidity profiles, and market monitoring systems. This behavioral data helps identify where published rules may differ from operational practices.
The system updates its data in real-time as new information becomes available. Factors that may affect scores include:
FACTORS AFFECTING SCORE UPDATES
- Regulatory Enforcement Actions:
Warnings, fines, or license changes - Security Incidents:
From minor vulnerabilities to data incidents - Jurisdiction Changes:
Operational location changes - Ownership Transfers:
Changes in organizational structure - Product Launches:
New service offerings
Sanctions Exposure: Direct or indirect relationships
This regular data updating creates a dynamic profile that reflects changes in the digital asset ecosystem.
Geographic Data Distribution
Geographic data adds another dimension to the VASP assessment. The analysis shows variations in compliance metrics across different regions, with some jurisdictions having venues with consistently different scoring patterns.
Regulatory framework data appears to correlate with scoring patterns. Regions with established regulatory frameworks—even those with detailed requirements—often host VASPs with higher average scores. The data suggests a correlation between regulatory clarity and compliance metrics.
The data challenges assumptions about regulatory preferences. Information collected indicates that many service providers operate in jurisdictions with clear regulatory guidelines rather than minimal oversight.
This geographic dimension has particular relevance regarding “travel rule” implementations. As information-sharing requirements between VASPs increase globally, the data shows varying levels of preparedness across different regions.
Sanctions Data Collection
Modern sanctions intelligence systems incorporate multi-layered approaches that go beyond simple screenings.
At the jurisdiction level, the system tracks VASPs operating in sanctioned territories or serving restricted regions. This includes data on corporate structures that may affect jurisdictional exposure. The system also collects information on IP access patterns for insights into geographic activities.
As sanctions regimes grow increasingly complex and targeted, this detailed data collection provides insights into potential risks. For institutions that face significant penalties for sanctions violations, this information offers valuable reference points for compliance processes.
The system also documents various approaches to sanctions requirements within the digital asset ecosystem. This includes data on transaction patterns and customer base changes following sanctions announcements.
Market Integrity Metrics
Market integrity remains an area of focus in the digital asset industry. Lukka’s system includes data on venues’ anti-manipulation frameworks and their implementation.
The assessment documents publishes policies against market abuse and analyzes trading data for potential manipulation indicators. The system records unusual price movements, trading patterns suggesting artificial volume, and other market anomalies.
This dimension provides information for institutional investors concerning market integrity risks. By including market integrity in the overall assessment, the system offers a more comprehensive view than approaches focused solely on regulatory compliance.
The data shows correlation between robust anti-manipulation controls and other compliance indicators. Venues with market surveillance technology and policies against abusive trading typically score higher across other dimensions as well.
Usage Patterns Across Market Participants
For different market participants, VASP scores provide different types of information:
For Exchanges
Digital asset exchanges utilize scoring data when evaluating potential counterparties. Before establishing trading relationships with other venues, exchange compliance teams can reference data for counterparty evaluation.
This creates a framework for implementing tiered risk management, where different interaction levels may be determined based on risk scores. The data may influence trading volumes or monitoring approaches.
The scoring system provides documentation that demonstrates due diligence processes. Rather than relying solely on internal assessments, compliance teams can reference objective third-party evaluations.
For Custodians
Digital asset custodians use the data when selecting venues for client trading activities. The scoring system provides due diligence information that can be incorporated into client risk disclosures.
Historical risk records enable custodians to identify patterns that might not be apparent from single-point assessments. Volatility tracking helps identify operators whose risk profile shows fluctuations—which may indicate underlying changes.
For institutional clients, custodians can reference these scores to demonstrate their risk management processes in a competitive market.
For Traditional Financial Institutions
Banks and other traditional financial institutions entering the crypto space can use the data to inform onboarding processes for digital asset counterparties. Rather than creating crypto-specific risk frameworks independently, they can incorporate third-party assessments into existing workflows.
This approach helps align with regulatory expectations while acknowledging the unique characteristics of digital asset markets. It integrates traditional compliance systems with crypto-specific considerations in a structured manner.
For Asset Managers
Investment professionals can use the data when selecting trading venues, complementing metrics like reputation or size. Ongoing risk monitoring across portfolio exposure points allows for timely reassessments when venue profiles change.
The system also provides information for regulatory reporting by offering objective metrics for compliance documentation. This creates a reference trail for venue selection processes.
Market Access Correlations
VASP scores show correlation with market access decisions, with influence beyond risk assessment:
| Decision Area | Observed Usage of VASP Scores | Market Relevance |
|---|---|---|
Asset Listing |
Exchanges reference scores when evaluating new token listings |
Affects market access for new projects |
Liquidity Provision |
Market makers consider venue risk in resource allocation |
Influences trading costs and execution quality |
Banking Relationships |
Financial institutions review scores when assessing crypto clients |
Affects access to fiat on/off ramps |
Insurance Coverage |
Underwriters consider scores for premium calculations |
Impacts cost structure for service providers |
Regulatory Reporting |
Scores provide metrics for compliance documentation |
Supports audit processes |
Institutional Access |
Asset managers reference scores when approving trading venues |
Influences institutional capital flows |
This information shows how risk metrics correlate with business decisions. For VASP operators, the data suggests that score improvements may relate to commercial advantages.
Compliance Data Trends
Analysis of venue data over time reveals several patterns. VASPs that show improvement in their risk scores often implement similar practices, regardless of their starting metrics.
Regulatory engagement appears to correlate with improvements. Venues that pursue licenses in well-regulated jurisdictions, even when not required for current operations, often show better risk profiles. This proactive regulatory approach correlates with score improvements.
Transparency measures also correlate with positive movement. Venues that enhance disclosure around ownership structures, operational controls, and asset reserves typically show corresponding increases in their risk scores. This suggests a relationship between transparency and governance metrics.
Security investments show similar correlation with score improvements. VASPs that implement robust security frameworks, undergo external audits, and address identified vulnerabilities show measurable risk reduction.
Leadership composition appears as a notable factor. Venues that appoint compliance executives with traditional finance experience and provide them with organizational authority tend to show more consistent improvement than those making limited changes.
Market Development Outlook
The path toward a more mature risk infrastructure in digital asset markets continues to develop. As regulatory frameworks expand globally, distinctions between various compliance approaches among venues may become more pronounced.
For service providers, the data shows that investment in compliance infrastructure correlates with higher scores. The percentage of venues achieving top scores indicates that such outcomes are achievable with appropriate resources.
For institutions, the data provides information that can be incorporated into assessment processes. The distribution of scores across the VASP landscape offers objective measurements beyond metrics such as size or trading volume.
For regulators, the findings present empirical data that may inform supervisory approaches. The information on risk distribution could potentially support resource allocation decisions in regulatory oversight.
Building Digital Asset Strategies
Lukka’s reference data system provides standardized metrics across the ecosystem. This standardization addresses challenges in consistent evaluation approaches for digital assets.
Organizations utilizing the system can:
- Monitor changes to existing marketplace and custodian entities
- Define parameters for assets that can be traded or stored
- Implement standardized due diligence processes
- Create consistent risk tolerances aligned with organizational policies
The implementation of Lukka Asset Score provides additional granularity by establishing standardized identifiers for digital assets themselves. This standardization addresses the persistent challenge of asset identification in an ecosystem where a single cryptocurrency might be known by different tickers or names across various platforms.
