[Jensson]

The most likely reason to pay much higher interest on money deposited than money they lend out is to steal the deposited money. It isn't illegal to do it, but it is a huge red flag which is why it would warrant an inspection.

Smart contracts doesn't save you here, since the deposit happened when you bought their crypto coins, not when you signed the smart contract.

[Vespasian]

I wonder how they verified borrowers identity.

Stealing the deposits would require

a) Verification happens without any government id (I assume this is true) b) depends somehow on the bank / smart contract authors

Then it would be trivially easy to generate huge amount of "borrowers" who simply "default" on their "loan".