The Bank for International Settlements has issued a report highlighting the growing trend 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 services are akin to unsecured loans to under-regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically offered by separate entities like banks, brokers, and exchanges.
The report's authors express concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income from their crypto assets. While these products often promise attractive returns, they are structured more like unsecured lending than savings. The report notes that these platforms effectively take deposits and reinvest them in high-risk activities without the stability guarantees of traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then utilizes the funds for various 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 prevalent in the industry. The BIS report 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 these dynamics can quickly spiral out of control.