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 services, which include 'earn' and yield products, are often marketed as a way for retail users to generate passive income from their crypto assets, but in reality, they function more like unsecured loans to lightly regulated 'shadow banks'. The report highlights the rapid growth of these products and notes that they are widely available to retail users, who are often unaware of the risks involved. The biggest concern is that these platforms are taking deposits and using them for risky activities without the safeguards that are typically in place in traditional banking, such as insurance and transparency.
Users who invest in these products are exposed to the solvency of the platform and may lose control and ownership of their assets. The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these unregulated 'shadow banks', and warns that the lack of transparency and protection leaves users vulnerable to significant losses. The report also notes that the crypto industry's largest players have evolved into 'multifunction cryptoasset intermediaries', offering a range of services that would typically be separated across different financial institutions.