The Bank for International Settlements has released a report highlighting the risks associated with cryptocurrency exchanges that offer 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 exchanges have evolved into 'multifunction cryptoasset intermediaries', offering a range of services that are typically separated across banks, brokers, and exchanges.
The main concern is the rapid growth of 'earn' and yield products, which are often marketed to retail users as a way to generate passive income on their crypto assets. However, these products are essentially unsecured loans, and users are 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 risks associated with these types of products. The authors warn that users are relinquishing control and ownership of their digital assets to the platform, which then uses the funds for lending, trading, or market-making strategies, without the same level of transparency and insurance as traditional finance.