The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services similar to traditional banking, such as lending and yield products, without providing the same level of protection to consumers. According to the report, these exchanges are evolving into complex financial institutions, offering a range of services that typically would be separated among banks, brokers, and exchanges. The report expresses concern over 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 structured more like unsecured loans than savings accounts, and they lack the stability and safeguards of traditional banking.
The report notes that users of these platforms often relinquish control and ownership of their digital assets, which are then used for lending, trading, or market-making strategies. The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack transparency and insurance. The report warns that users are exposed to the platform's solvency in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses in the industry. The BIS report concludes that the cryptocurrency industry's lack of regulation and oversight poses a significant risk to consumers, highlighting the need for greater transparency and protection.