The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to those of traditional banks, such as lending and yield products, but without the same level of protection. According to the report, these services are essentially unsecured loans to lightly regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, combining services that are typically separate in traditional finance.
The rapid growth of 'earn' and yield products, which are often marketed to individual investors as a means of generating passive income from their crypto assets, is a significant concern. These products may appear attractive but are actually more similar to unsecured lending than traditional savings.
The report highlights that these platforms take deposits and use them for risky activities without the stability and safeguards of traditional banking. In many cases, users relinquish control and ownership of their 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 the arrangements lack the insurance and transparency of traditional finance.
The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, where users are exposed to the platform's solvency in the event of losses. The BIS also references the flash crash of October 2025, which triggered significant forced liquidations across crypto derivatives markets, demonstrating how quickly these dynamics can escalate.