According to a report released by the Bank for International Settlements, cryptocurrency exchanges are increasingly providing services similar to traditional banking, such as lending and yield products, but without the same level of protection. The report highlights that what appears to be a high-yield savings product is actually an unsecured loan to a lightly regulated entity. The crypto industry's largest players have evolved into multifaceted intermediaries, offering a range of services that would typically be separated among banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a significant concern, as these products are often marketed to retail users as a means of generating passive income from their crypto assets, but their structure is more akin to unsecured lending.
These platforms effectively accept deposits and invest them in high-risk activities without the safeguards that make traditional banking stable. 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. However, 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 in the industry, highlighting how users are exposed to significant risks. The BIS also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, demonstrating how quickly these dynamics can escalate.