The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing financial services similar to those of traditional banks, but without the necessary protections. This includes lending and yield products that are essentially unsecured loans to lightly regulated entities. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from their crypto assets.
However, these products are structured more like unsecured lending than savings and lack the stability and safeguards of traditional banking. Users of these platforms often relinquish control and ownership of their digital assets, which are then used for various activities such as lending, trading, and market-making, with returns paid to customers as a share of the profits. The report notes that these arrangements are similar to bank deposits but lack the insurance and transparency offered by traditional finance, leaving users exposed to the platform's solvency in the event of losses. The collapse of Celsius Network and FTX are cited as examples of the weaknesses in the industry, with the report warning that users are vulnerable to a system built on leverage, opacity, and unsecured promises.