The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering banking services, such as lending and yield products, without the same level of protection as traditional financial institutions. According to the report, these services, which are often marketed as high-yield savings products, are in reality unsecured loans to lightly regulated entities. The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, offering a range of services that would typically be provided by separate entities, such as banks, brokers, and exchanges. The rapid 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 their structure is more akin to unsecured lending than traditional savings.
The report warns that these platforms are effectively taking deposits and using them for high-risk activities without the necessary safeguards, leaving users exposed to the platform's solvency in the event of losses. The lack of transparency and insurance in these arrangements is also a significant concern, with users often relinquishing control and ownership of their digital assets to the platform. The report cites the collapse of Celsius Network and FTX as examples of the risks associated with these unregulated 'shadow banks', and highlights the need for greater oversight and protection for users.