The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services similar to traditional banks, including lending and yield products, but without the same level of protection for users. According to the report, these services, which are often marketed as high-yield savings products, are in reality unsecured loans to lightly regulated entities.
The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, offering a range of services that would typically be provided by separate entities such as banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a major concern, as these products are widely marketed to retail users as a means of generating passive income from crypto assets.
However, the report warns that these products are often structured more like unsecured lending than savings, and users may be exposed to significant risk. The report also highlights the lack of transparency and insurance in these arrangements, leaving users vulnerable to losses.
The collapse of Celsius Network and FTX are cited as examples of the risks posed by these unregulated 'shadow banks.' The report concludes that the weaknesses in the system, including leverage, opacity, and unsecured promises, pose a significant risk to users and the broader financial system.