The Bank for International Settlements has released a report highlighting the growing concern of cryptocurrency exchanges offering banking services, such as lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these exchanges are essentially operating as 'shadow banks,' with users often unaware of the risks involved. The report notes that the largest players in the crypto industry have evolved into 'multifunction cryptoasset intermediaries,' offering a range of services that would typically be provided by separate entities, such as banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a major concern, as these products are often marketed to retail users as a way to generate passive income, but in reality, they are more akin to unsecured loans.
The report warns that these platforms are taking deposits and using them for risky activities, without providing the necessary safeguards, such as insurance, to protect users. In many cases, users are relinquishing control and ownership of their digital assets to the platform, which can then use the funds for lending, trading, or market-making strategies. The report cites the collapse of Celsius Network and FTX as examples of the risks posed to users, highlighting the lack of transparency and protection in the industry.
The BIS also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly the dynamics of the industry can spiral out of control.