The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, such as lending and yield products, but without the corresponding protections. This trend is concerning because it exposes users to significant risks, as these services are often unsecured and uninsured. The report highlights that the largest players in the crypto industry have evolved into multifaceted intermediaries, offering a range of services that typically would be provided by separate entities like banks, brokers, and exchanges.
A key concern is the rapid growth of 'earn' and yield products, which are widely marketed to individual users as a means to generate passive income from their crypto assets. However, these products often resemble unsecured lending rather than traditional savings, with the platforms effectively taking deposits and reinvesting them into high-risk activities without the stability-enhancing safeguards found in traditional banking.
Users of these platforms often relinquish control and sometimes ownership of their digital assets, which are then used for various strategies like lending, trading, or market-making, with the returns paid to customers being a share of the profits generated. This arrangement lacks the transparency and insurance that traditional finance provides, leaving users exposed to the platform's financial health in the event of losses.
The report cites the collapse of Celsius Network and FTX as examples of the vulnerabilities within the industry, emphasizing that these failures were not just due to poor management but also a result of a system built on leverage, lack of transparency, and unsecured promises. The flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, further underscores the potential for rapid destabilization in these dynamics.