The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to traditional banking, such as lending and yield products, but without providing the same level of protection to users. According to the report, these services are essentially unsecured loans to lightly regulated entities. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to individual investors as a means to generate passive income from their cryptocurrency assets.
However, these products are structured more like unsecured lending than savings accounts, and they lack the stability and safeguards of traditional banking. Users of these platforms often relinquish control of their assets, which are then used for various activities such as lending, trading, or market-making.
The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack transparency and the insurance that traditional finance provides. The report warns that users are exposed to the platform's solvency in the event of losses and cites the collapse of Celsius Network and FTX as examples of the risks involved.
The Bank for International Settlements emphasizes that the weaknesses in the industry are still prevalent and can lead to significant losses for users.