A recent report by the Bank for International Settlements highlights the growing trend of cryptocurrency exchanges offering services similar to traditional banking, such as lending and yield products, but without the corresponding protections. The report notes that these services, often marketed as high-yield savings products, are in reality unsecured loans to lightly regulated entities.
The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically provided by separate institutions. The rapid growth of 'earn' and yield products is a significant concern, as they are frequently promoted to retail users as a means to generate passive income from their crypto assets.
However, these products are structured more like unsecured lending than savings and lack the stability of traditional banking. Users of these platforms often relinquish control and sometimes ownership of their assets, which are then used for various activities such as lending, trading, or market-making.
The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the insurance and transparency of traditional finance. The report warns that users are exposed to the platform's solvency in the event of losses and cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry. The report concludes that the risks associated with these unregulated 'shadow banks' can have far-reaching consequences, as highlighted by the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets.