A recent report by the Bank for International Settlements highlights the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the corresponding protections. This shift has led to concerns about the lack of oversight and insurance, leaving users vulnerable. The report notes that these platforms have evolved into 'multifunction cryptoasset intermediaries,' combining services that are typically separate in traditional finance.
The rapid growth of 'earn' and yield products, often marketed as tools for passive income generation, is particularly alarming due to their structure being more akin to unsecured lending than savings. Users of these platforms often relinquish control and ownership of their assets, which are then used for various activities, with returns paid out as a share of the profits.
However, these arrangements lack the transparency and insurance found in traditional banking, exposing users to significant risks, including the platform's solvency. The report cites the collapses of Celsius Network and FTX as examples of the vulnerabilities in the system, emphasizing the need for greater oversight and protection for users.