The Bank for International Settlements has issued a report highlighting the risks associated with cryptocurrency exchanges that offer bank-like services, such as lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these exchanges have evolved into 'multifunction cryptoasset intermediaries', offering a range of services that would typically be separated across banks, brokers, and exchanges. The report notes that the growth of 'earn' and yield products is a major concern, as they are often marketed to retail users as a way to generate passive income on their crypto assets, but are actually more similar to unsecured lending than savings.
The report warns that these platforms are taking deposits and using them for risky activities without the necessary safeguards, leaving users exposed to the platform's solvency in the event of losses. The collapse of Celsius Network and FTX are cited as examples of the risks associated with these types of arrangements, which lack the transparency and insurance of traditional finance.