A report released by the Bank for International Settlements highlights the growing concern of cryptocurrency exchanges offering services similar to traditional banking, but without the same level of protection. These exchanges are providing lending and yield products, but they lack the security and insurance that conventional financial institutions offer.
The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, combining services that are typically separated across different financial institutions. The rapid growth of 'earn' and yield products is a significant concern, as they are often marketed to retail users as a means to generate passive income on their crypto assets, but their structure is more akin to unsecured lending.
The report warns that these platforms are essentially taking deposits and using them for high-risk activities without the necessary safeguards, leaving users exposed to the platform's financial stability. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for various strategies, with the returns paid to customers being a share of the profits generated. The lack of transparency and insurance in these arrangements is a significant risk, and the report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry.
The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting the potential for rapid destabilization in the market.