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 more akin to unsecured loans to under-regulated financial institutions. The crypto industry's major players have transformed into multifaceted intermediaries, providing a range of services that would typically be separated across different financial institutions. The report highlights the rapid growth of 'earn' and yield products as a significant concern, as they are often marketed to individual investors as a means of generating passive income from their cryptocurrency assets.
However, these products are structured more like unsecured lending than traditional savings, and they lack the stability and safeguards of traditional banking. Users of these platforms often relinquish control of their assets, which are then used for various activities such as lending, trading, and market-making.
The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the transparency and insurance provided by traditional finance. The report cites the collapse of Celsius Network and FTX as examples of the risks faced by users of these platforms, and it warns that the weaknesses in the industry are still prevalent. 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 these dynamics can spiral out of control.