The Bank for International Settlements has released a report highlighting the risks associated with 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 services, which are increasingly popular, are essentially unsecured loans to lightly regulated 'shadow banks.' The crypto industry's largest players have evolved into multifunctional intermediaries, offering a range of services that would typically be separated across banks, brokers, and exchanges. The report expresses concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income on their crypto assets.
However, these products often promise attractive returns but are structured more like unsecured lending than savings, and they lack the safeguards that make traditional banking stable. 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 these arrangements lack the insurance and transparency offered by traditional finance. The report warns that users are exposed to the platform's solvency in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses in the industry. The BIS also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly these dynamics can spiral out of control.