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 services, which include stablecoin yields and other DeFi "earn" products, resemble unsecured loans to lightly regulated entities.
The crypto industry's largest players have evolved into multifunctional intermediaries, bundling services typically offered by separate entities such as banks, brokers, and exchanges. The report expresses concern over the rapid growth of "earn" and yield products, which are widely marketed to retail users as a means of generating passive income from their crypto assets. While these products often promise attractive returns, they are structured more like unsecured lending than savings, lacking the stability and safeguards of traditional banking.
In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for various activities, with returns paid to customers being a share of the profits generated. However, these arrangements lack the insurance and transparency offered by traditional finance, leaving users exposed 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, highlighting the risks associated with a system built on leverage, opacity, and deposit-like promises without protection.