The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services akin to traditional banking, such as lending and yield products, but without the same level of protection. According to the report, these services are essentially unsecured loans to lightly regulated 'shadow banks.' The crypto industry's major players have evolved into multifaceted intermediaries, combining services that are typically separate in traditional finance. The report highlights the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means to generate passive income from their crypto assets.
However, these products are often structured more like unsecured lending than savings, posing significant risks to users. The report notes that these platforms take deposits and invest them in high-risk activities without the stabilizing safeguards found in traditional banking. Users often relinquish control and ownership of their digital assets to the platform, which uses the funds for various strategies, with customers receiving a share of the profits.
The report warns that these arrangements lack the insurance and transparency of traditional finance, leaving users exposed to the platform's solvency in the event of losses. The BIS cites the collapse of Celsius Network and FTX as examples of the weaknesses prevalent in the industry, highlighting the risks of a system built on leverage, opacity, and unprotected deposit-like promises.
The report also references the October 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, demonstrating how quickly these dynamics can escalate.