The Bank for International Settlements has released a report highlighting the risks associated with cryptocurrency exchanges offering 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 complex entities, bundling services that would typically be separate, and are now acting as 'multifunction cryptoasset intermediaries'. The report expresses concern over the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from their crypto assets. However, these products are structured more like unsecured lending than traditional savings, and users are exposed to significant risks.
The report notes that users often relinquish control and ownership of their assets to the platform, which then uses the funds for various activities, and the returns paid to customers are a share of the profits generated. Unlike traditional banking, these arrangements lack insurance and transparency, leaving users vulnerable to the platform's solvency in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, and warns that users are exposed to significant risks due to the lack of regulation and protection.