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 for users. According to the report, what appears to be a high-yield savings product is actually an unsecured loan to a lightly regulated entity.
The report highlights the evolution of the crypto industry's major players into multifaceted intermediaries, offering a range of services that would typically be separate in traditional finance. The rapid growth of 'earn' and yield products is a significant concern, as these are often marketed to retail users as a means of generating passive income on their crypto assets, but in reality, they are more akin to unsecured lending. The report warns that these platforms are taking deposits and using them for risky activities without the necessary safeguards, 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. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, highlighting the need for greater protection for users.