The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services similar to traditional banks, including lending and yield products, but lack the regulatory oversight and protection that conventional financial institutions offer. According to the report, these services, which include 'earn' and yield products, are often marketed to retail users as a means of generating passive income from their crypto assets. However, the report notes that these products are essentially unsecured loans to lightly regulated 'shadow banks'.
The authors of the report express concern over the rapid growth of these products and the lack of transparency in how the assets are used. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for various activities, with the returns paid to customers being a share of the profits generated.
The report highlights the risks associated with these arrangements, including the lack of insurance and the potential for significant losses in the event of the platform's insolvency. The collapse of Celsius Network and FTX are cited as examples of the weaknesses in the industry, with the report stating that the failures were not just a result of poor management, but rather a systemic issue stemming from leverage, opacity, and unsecured promises. The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly the dynamics of the industry can spiral out of control.