The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to those of traditional banks, including lending and yield products, but without the same level of protection for users. According to the report, these exchanges have evolved into complex financial institutions, providing a range of services that would typically be offered by separate entities such as banks, brokers, and exchanges. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a way to generate passive income from their crypto assets. However, these products are often structured more like unsecured loans than savings accounts, and users may be exposed to significant risks.
The report notes that users of these platforms often relinquish control of their assets, which are then used for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated. The lack of transparency and insurance in these arrangements poses a significant risk to users, who may be left vulnerable in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these unregulated 'shadow banks.' The authors warn that the cryptocurrency industry's lack of regulation and oversight poses a significant threat to financial stability, and that users are often unaware of the risks they are taking on when using these platforms.