The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering banking services, including lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these services are akin to unsecured loans to lightly regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically offered by separate entities such as banks, brokers, and exchanges. A key concern is 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.
However, these products are structured more like unsecured lending than savings, and their attractive returns come with significant risks. The report notes that these platforms effectively take deposits and reinvest them in high-risk activities, without providing the same level of stability and safeguards as 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 customers receiving a share of the profits. The report warns that these arrangements lack transparency and insurance, leaving users exposed to the platform's solvency in the event of losses.
The collapse of Celsius Network and FTX are cited as examples of the weaknesses in the industry, with the report stating that the failures were not just a result of poor management, but a system built on leverage, opacity, and unsecured promises. The report also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting the potential for rapid destabilization in the industry.