The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering bank-like services, including lending and yield products, without providing the same level of protection as traditional financial institutions. The report states that these services, which appear to be high-yield savings products, are in reality unsecured loans to lightly regulated 'shadow banks'.
The crypto industry's largest players have evolved into 'multifunction cryptoasset intermediaries', offering a range of services that would typically be separated across banks, brokers, and exchanges. The report expresses concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as tools for generating passive income on their crypto assets. However, these products often promise attractive returns but are structured more like unsecured lending than savings. The report warns that these platforms are effectively taking deposits and recycling them into risky activities without the necessary safeguards, leaving users exposed to the platform's solvency in the event of losses.
The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, highlighting the need for greater transparency and regulation.