The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing banking-like services, including lending and yield products, without offering the same level of protection as traditional financial institutions. According to the report, these services, which appear to be high-yield savings products, are actually 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, but are structured more like unsecured lending than savings.
These platforms take deposits and use 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 report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, emphasizing that the system is built on leverage, opacity, and deposit-like promises without protection.