A report released by the Bank for International Settlements has highlighted the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without providing the same level of protection. The report notes that these services, which are increasingly being marketed to retail users as a means of generating passive income, are in reality unsecured loans to lightly regulated entities.
The largest players in the crypto industry have evolved into multifaceted intermediaries, offering a range of services that would typically be separate in traditional finance. The rapid growth of 'earn' and yield products is a major concern, as they are often structured more like unsecured lending than savings products. This lack of transparency and protection leaves users exposed to significant risks, including the platform's solvency and potential losses.
The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, where users were left vulnerable due to the lack of safeguards and deposit-like promises without protection.