The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services similar to those of traditional banks, such as 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 essentially unsecured loans to lightly regulated entities, often marketed as high-yield savings products to retail users. The report expresses concern over the rapid growth of these products and their potential to expose users to significant risks, including the lack of transparency and insurance typically found in traditional banking.
The BIS notes that users of these platforms often relinquish control and ownership of their 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 generated. However, these arrangements lack the safeguards and insurance of traditional banking, leaving users vulnerable to losses in the event of platform insolvency. The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these weaknesses in the industry, emphasizing the need for greater protection and regulation of cryptocurrency exchanges and their services.