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 the same level of protection. This is according to a report released by the BIS, which highlights the dangers of these 'shadow banks.' The report notes that what appears to be a high-yield savings product is, in reality, an unsecured loan to a lightly regulated entity. The crypto industry's largest players have evolved into multifaceted intermediaries, bundling services that are typically separated across banks, brokers, and exchanges. A key concern is 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.
However, these products often promise attractive returns but are structured more like unsecured lending than savings. The report warns that these platforms are effectively taking deposits and using them for risky activities without the necessary safeguards, leaving users exposed to potential losses.
In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses 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 BIS cites the collapse of Celsius Network and FTX as examples of the weaknesses within the industry, stating that users are exposed to the platform's solvency in the event of losses.
The report also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting how quickly these dynamics can spiral out of control.