The Bank for International Settlements has issued 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. The report notes that these services, which are becoming increasingly popular, are essentially unsecured loans to lightly regulated entities. The crypto industry's largest players have evolved into multifaceted intermediaries, offering a range of services that would typically be separated across banks, brokers, and exchanges.
The report's authors express concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income on their crypto assets. However, these products often promise attractive returns but are structured more like unsecured lending than savings. The report warns that these platforms are taking deposits and using them for risky 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 major concern.
The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, highlighting the risks associated with these unregulated bank-like services.