The Bank for International Settlements has issued a report highlighting the growing trend of cryptocurrency exchanges offering services similar to traditional banks, such as lending and yield products, but without the same level of protection. According to the report, these exchanges are essentially operating as unregulated 'shadow banks', providing bank-like services without the necessary safeguards or insurance. The report notes that the largest players in the crypto industry have evolved into multifunctional intermediaries, offering a range of services that would typically be provided by separate entities such as banks, brokers, and exchanges.
The main concern is the rapid growth of 'earn' and yield products, which are being widely marketed to retail users as a way to generate passive income on their crypto assets. However, these products are often structured more like unsecured loans than savings products, and users are exposed to the risk of losses without the benefit of traditional banking safeguards.
The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these unregulated 'shadow banks', and warns that users are vulnerable to the platform's solvency in the event of losses. The report also highlights the lack of transparency in how assets are used and the potential for rapid losses, as seen in the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets.