The Bank for International Settlements has issued a report stating that cryptocurrency exchanges are increasingly providing services similar to those of traditional banks, including lending and yield products, but without the same level of protection. According to the report, these services, which appear to be high-yield savings products, are in reality unsecured loans to lightly regulated entities. The report highlights the rapid growth of 'earn' and yield products, which are widely marketed to individual users as a means to generate passive income from their cryptocurrency assets.
However, the structure of these products is more akin to unsecured lending than traditional savings, and they lack the stability and safeguards of traditional banking. The report also notes that users of these platforms often relinquish control and ownership of their assets, which are then used for various activities such as lending, trading, and market-making.
The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack the transparency and insurance provided by traditional finance. The report cites the collapse of Celsius Network and FTX as examples of the risks associated with these products and the weaknesses that still exist within the industry.