The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the same level of protection. This shift has led to concerns about the risks associated with these unsecured loans to lightly regulated entities. The report notes that major players in the crypto industry have evolved beyond simple trading platforms, now providing a range of services that would typically be separated across banks, brokers, and exchanges. A key worry is the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means to generate passive income from their crypto assets but are structured more like unsecured lending than savings.
These platforms effectively take deposits and use them for risky activities without the stability and safeguards of traditional banking. In doing so, users may relinquish control or ownership of their digital assets, which are then used for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits. This arrangement lacks the insurance offered by traditional finance and may also lack transparency regarding the use of assets.
The report warns that users are exposed to the platform's solvency in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses within the industry. It emphasizes that the failures of these platforms were not just a result of poor management but a system built on leverage, opacity, and deposit-like promises without adequate protection. The report also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting how quickly these dynamics can escalate.