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 corresponding protection. According to the report, these services, which appear to be high-yield savings products, are in fact unsecured loans to lightly regulated entities. The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, providing a range of services that would typically be separated across banks, brokers, and exchanges.
The rapid growth of 'earn' and yield products is a major concern, as these are widely marketed to retail users as a means of generating passive income from their crypto assets, despite being structured more like unsecured lending than savings. Essentially, these platforms accept deposits and reinvest them in high-risk activities without the stability guarantees of traditional banking.
In many cases, users relinquish control and even ownership of their digital assets to the platform, which utilizes the funds for various strategies, with customers receiving a share of the profits generated. While similar to bank deposits, these arrangements lack the insurance and transparency of 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, where users are exposed due to a system built on leverage, opacity, and unprotected deposit-like promises. The report also references the 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how quickly these dynamics can escalate.