The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering banking services, such as lending and yield products, without the protections offered by traditional financial institutions. 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 multifunctional intermediaries, offering a range of services that would typically be separated across banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a major concern, as these products are often marketed to retail users as a way to generate passive income on their crypto assets, but their structure is more akin to unsecured lending than traditional savings. The report warns that these platforms are taking deposits and using them for risky activities without the safeguards that make traditional banking stable, leaving users exposed to the platform's solvency in the event of losses.
The lack of transparency and insurance in these arrangements is also a concern, with the report citing the collapse of Celsius Network and FTX as examples of the risks posed to users.