The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services akin to traditional banking, such as lending and yield products, but without providing the same level of protection as conventional financial institutions. According to the report, what appears to be a high-yield savings product is, in reality, an unsecured loan to a lightly regulated entity. 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 on their crypto assets, but are structured more like unsecured lending than savings.
These platforms take deposits and recycle them into high-risk activities without the stability mechanisms found in traditional banking. Users often relinquish control and ownership of their assets to the platform, which uses the funds for various strategies, with customers receiving a share of the profits.
However, these arrangements lack the transparency and insurance offered by traditional finance, leaving users exposed to the platform's solvency in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, emphasizing that the failures were not just a result of poor management, but a systemic issue stemming from leverage, lack of transparency, and unsecured promises.
The BIS also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how these dynamics can quickly escalate.