It’s not just the outlandish returns that some Bitcoiners are bragging about these days. There’s also the yield.

At a time when interest rates on conventional bank deposits are pinned to the floor—often below 0.5%— financial technology companies are offering to pay owners of Bitcoin and other cryptocurrencies annual percentage yields of 2% to 6% and sometimes more. You can deposit your coins with a few taps on one of their smartphone apps.

What’s the catch? There are several, actually. In addition to the risk you’re already taking in owning crypto, the earnings are paid in cryptocurrencies, too. Token prices could easily fall in value as sharply as they’ve risen in the past year, wiping out whatever yield advantage you’re getting, if you are comparing it to what you could have made investing dollars. And you’re essentially lending companies your crypto without many of the protections that come with a bank account, such as coverage from the Federal Deposit Insurance Corporation.

Some of the companies hawking yield accounts have websites that look more than a little like an online bank’s. Crypto lender Nexo uses the tagline “Banking on Crypto” and touts the $375 million of insurance it carries on custodial assets. What that policy covers, however, isn’t like FDIC insurance, which protects savers from losses. On a separate page on its site, Nexo says the insurance is in place to protect users against “commercial crime” which includes “physical and/or cybersecurity breach, and/or employee theft,” not losses that may be incurred from its lending activities.

Yields are part of a surprising turn in the crypto market. Bitcoin and its descendants, such as Dogecoin, Ether, and countless other tokens, are often seen as a way to avoid the established financial system. Some “hodlers” (crypto slang for long-term holders) are wary of yield accounts because they’d have to entrust the service with their private keys, the alphanumeric strings that grant control of a digital asset. But alongside that world has sprung up a complex, interconnected market that looks a lot like a wilder version of Wall Street—complete with financial derivatives, arbitrage, borrowing, and a panoply of middlemen. Some have called it a shadow banking system for crypto.

    “Never risk your whole stack, and don’t risk what you can’t lose.
    These are private companies with no federal backing”

At the lower end of yields is the 2.05% being paid on Bitcoin by Gemini Earn. The product is part of the Gemini crypto exchange, founded by the billionaire twins Tyler and Cameron Winklevoss. Deposits made into an Earn account leave Gemini and go to another company called Genesis, which in turn lends to institutional and high net worth clients. These clients may want to borrow cryptocurrency for financial trades.

For example, a trader might want to short a cryptocurrency, or bet that its value will drop. One way to do this is to borrow it, then sell it, and pocket the difference if the price falls. But borrowing for big speculative shorts on Bitcoin is comparatively rare these days. Another reason to borrow Bitcoin could be to construct an arbitrage trade that takes advantage of discrepancies in market prices. Some crypto-based businesses and exchanges also borrow Bitcoin for liquidity, such as to quickly make a payment in crypto or settle a trade.

But all of that is happening behind the scenes. Customers depositing their crypto with Gemini Earn ultimately have to trust that Genesis is doing a good job vetting its borrowers and controlling its risk—and that it’s maintaining a strong enough balance sheet of its own to pay back Gemini Earn customers even if some bets go wrong. “At the end of the day, if anything would go wrong on the borrower side, that risk is on Genesis,” says Roshun Patel, vice president for lending at Genesis. “Since inception to date, we haven’t had a single default or capital loss.” Still, as with other crypto yield providers, the Frequently Asked Questions section of Gemini Earn’s website notes that accounts aren’t insured by the FDIC.

BlockFi, perhaps the most visible nonbank ­cryptocurrency firm, currently offers 5% on a deposit of up to half a Bitcoin and 2% on additional deposits above that amount and up to 20 Bitcoins. (At a recent price of about $44,000 per token, half a Bitcoin is $22,000.) It too mostly depends on lending to pay its depositors, says Chief Executive Officer and co-founder Zac Prince in an email. Prince says the firm also engages in its own trading.

After the 2008 financial crisis, U.S. lawmakers were concerned enough about banks doing their own trading that they restricted the practice with the so-called Volcker Rule. BlockFi is neither a bank nor subject to such regulations, but that rule points to the fact that trading can be risky. Prince says the company’s activities can be better described as “market making.”

In addition to borrowing and lending, BlockFi runs platforms for trading cryptocurrency. “For example, when a retail or institutional client trades with BlockFi, they are facing BlockFi directly for the trade, and we are not matching the order before confirming it for our client,” Prince says. So BlockFi can potentially make or lose money if prices change after the trade. But Prince says the company isn’t trying to make bets on the direction of prices. “Everything we do at BlockFi is sized and managed relative to all risk considerations,” he says, adding that the firm has “maintained a perfect track record in high Bitcoin volatility environments” and that the “vast majority” of BlockFi’s loans are ­overcollateralized—meaning they’re backed by assets worth more than the loan.

Coinbase, the largest cryptocurrency exchange in the U.S., doesn’t offer a yield product for Bitcoin. It does offer staking yields of up to 6% for some less well-known cryptocurrencies. Staking yields are another kind of beast altogether, with no close parallel in the rest of finance. In a stake-based cryptocurrency, owners can allow some of their tokens to be used in the process that verifies transactions. Those who do can earn a reward. Coinbase does the staking and passes the rewards onto customers. If that’s all a bit baffling, the thing to focus on is the key risk trade-off: To earn a fat yield, you have to bet on a crypto you might not otherwise be interested in, with a future at least as uncertain as Bitcoin’s.

Antoni Trenchev, co-founder and managing partner of Nexo, echoes many crypto enthusiasts in dismissing the safety of banks. “When you have a traditional bank deposit the standard deposit insurance amount is up to $250,000 in the US and up to €100,000 in the EU, and from there on you are on your own,” Trenchev wrote in an email to Bloomberg. “That feeling of security that deposits are safe and insured above these amounts at traditional banks is largely rooted in the perception that banks are solid, trustworthy institutions.” Trenchev said that Nexo can be trusted because its loans are overcollateralized.