The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to those of traditional banks, including lending and yield products, but without the same level of protection for users. According to the report, these services, which appear to be high-yield savings products, are in fact unsecured loans to lightly regulated entities. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from their crypto assets, but are structured more like unsecured lending than savings.
This poses significant risks, as these platforms take deposits and reinvest them in risky activities without the safeguards that stabilize traditional banking. In many cases, users relinquish control and sometimes ownership of their assets to the platform, which uses the funds for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated.
However, these arrangements lack the insurance and transparency of traditional finance, leaving users exposed to the platform's solvency in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, emphasizing that the failures were not just a result of poor management but a systemic issue stemming from leverage, opacity, and unprotected deposit-like promises. The report also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how quickly these risks can escalate.