The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services similar to traditional banks, including lending and yield products, but without the same level of protection for users. According to the report, these exchanges are essentially operating as 'shadow banks,' offering unsecured loans to customers under the guise of high-yield savings products.
The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means to generate passive income from their crypto assets. However, these products are structured more like unsecured lending than traditional savings, and they lack the stability and safeguards of traditional banking.
The report notes that users of these platforms often relinquish control and ownership of their digital assets, which are then used for lending, trading, or market-making strategies. The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack transparency and the insurance offered by traditional finance. The report cites the collapse of Celsius Network and FTX as examples of the risks posed to users by these unregulated and unstable systems.
It also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how quickly these dynamics can spiral out of control.