The Bank for International Settlements has published a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the protective measures in place. According to the report, what appears to be a high-yield savings product is essentially an unsecured loan to a lightly regulated entity. The crypto industry's major players have evolved into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges.
The rapid growth of 'earn' and yield products, widely marketed to retail users as a means to generate passive income on crypto assets, is a significant concern. These products often promise attractive returns but are structured more like unsecured lending than savings.
The report warns that these platforms are taking deposits and using them for risky activities without the stability and safeguards of traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for various strategies, with returns paid to customers being a share of the profits generated. These arrangements lack the insurance and transparency offered by 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 prevalent in the industry, emphasizing that the failures were not just a result of poor management but a system built on leverage, opacity, and unprotected deposit-like promises. 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 the rapid escalation of these dynamics.