The Bank for International Settlements has issued 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 protections. 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 like banks, brokers, and exchanges. The primary concern lies in the rapid growth of 'earn' and yield products, which are widely marketed to individual users as a means to generate passive income from their crypto assets. Despite promising attractive returns, these products are structured more like unsecured lending than savings. Essentially, these platforms accept deposits and invest them in high-risk activities without the stability guarantees of traditional banking.
Users often relinquish control and ownership of their assets to the platform, which utilizes the funds for various strategies, with returns paid as a share of the profits. These arrangements resemble bank deposits but 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, emphasizing that the failures were not solely due to poor management but also a result of a system built on leverage, lack of transparency, and unprotected deposit-like promises.
The report also references the October 2025 flash crash, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can rapidly escalate.