In 2022, there were several exchanges that went bankrupt or otherwise did not have all the BTC they claimed to have, and several of them were gambling with the BTC that they held because they were promising high rates of yield for others to deposit their BTC, and so they maybe would pay 7% while they were receiving 15% or 20% from someone else and then so the exchange would keep the difference... but then it ended up that a bunch of these various parties were promising higher and higher levels of interest rates, and they only way that they could offer such higher rates was by using deposits from later investors to pay off early investors, and they were also gambling with the BTC to try to make returns that were greater than the rates that they were paying. Yet when the BTC market turned down in 2022, there was a lot of contagion since so many of the parties relied on the BTC price going up and the other products that they were gambling on in order to keep their payments going... so in the end, many of them did not have the coins they claimed to have to pay off all of their depositors.
The concept of Bitcoin APR or APY is a bad business, even if the rate is 1% isn't worth it. There are three down side to this which are privacy, security and centralization and that's kills what Bitcoin stand for and the usefulness in the first place.
Privacy wise, sending your Bitcoin to any platform whether it's a protocol or centralized exchanges has fulfilled in breaking your privacy because they already have your Bitcoin on their reserve/cold wallet/hot wallet and that means any Bitcoin you receive later in the future will be coming from their reserve. The blockchain watchers will have your utxo as part of coin from the platform and that will be on their watch forever unless you anonymize it to some degree using either coinjoin or any mixers to have a coin that is index by any chain surveillance.
The security is concept is the wost of all because you are depending on another platform, you have to trust the way they hold their coins and if something happen to their protocol, your Bitcoin is gone forever unless there was an agreement to refund back which most of the time are not the case, they move on like nothing happen because it's always written on their terms and conditions which many people don't read to understand what they are putting their Bitcoin into in the first place.
The centralization of Bitcoin has encompasses everything about what Bitcoin detest in the beginning, you don't control anything and you are powerless, you just do as you are told to do, you have to listen to the things you are told to do like KYC and all other things else you might not get your lock Bitcoin you gave them willingly.
Coming down to the peanut APR and APY they give to people, it's not worth giving anyone your Bitcoin, FTX did the same thing but it turned out to be the worst. They allegedly gave out Bitcoin with higher interest to people but in the exchange, it wasn't the case. They were using customers funds to play with market using Alameda research to provide liquidity for trades using high leverage, manipulating the market to get more and more Bitcoin. The model was working until the UST deppeged at some points and it turn out they had nothing left in their reserve. That upset the market for months before Bitcoin got back on its feet again.
There are history left for people to learn but they don't want to learn, they prefer quick gains when in reality you can buy Bitcoin, hold on your custodial wallet, in few years you have what it take to be a holder. Interestingly, it doesn't stop there, there is always opportunity to do DCA but most often people want things they can get quickly until they bite the dust.