The Bank for International Settlements has released a report cautioning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, such as lending and yield products, but without the corresponding protections. This shift has led to the emergence of what the report terms 'multifunction cryptoasset intermediaries,' where services typically separated across banks, brokers, and exchanges are now bundled together. A key concern is the rapid growth of 'earn' and yield products, which are often marketed to individual investors as a means to generate passive income from their crypto assets.
However, these products function more like unsecured loans than savings accounts, lacking the stability and insurance of traditional banking. Users of these platforms often relinquish control and sometimes ownership of their assets, which are then used for lending, trading, or market-making strategies, with returns paid out as a share of the profits. This setup exposes users to the platform's financial health and lacks the transparency and insurance found in traditional finance. The report cites the collapses of Celsius Network and FTX as examples of the risks inherent in this system, emphasizing that the failures were not just a result of poor management but also a consequence of a system built on leverage and opacity, with promises akin to deposit insurance but without the actual protection.