A report released by the Bank for International Settlements highlights the growing concern of cryptocurrency exchanges offering bank-like services, such as lending and yield products, without providing the same level of protection as traditional financial institutions. The report notes that these exchanges have evolved into multifunctional crypto asset intermediaries, offering a range of services that would typically be separated across banks, brokers, and exchanges.
The main concern is the rapid growth of 'earn' and yield products, which are often marketed to retail users as a way to generate passive income on their crypto assets. However, these products are structured more like unsecured lending than savings, and users are exposed to the platform's solvency in the event of losses. The report warns that users are relinquishing control and ownership of their digital assets to the platform, which then uses the funds for lending, trading, or market-making strategies, without the same level of transparency and insurance as traditional finance.
The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these unregulated 'shadow banks', and highlights the need for greater safeguards to protect users.