The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services similar to those of traditional banks, such as lending and yield products, but without the corresponding safeguards. This development is concerning because these exchanges operate without the protective measures and insurance that conventional financial institutions offer. The report highlights that what appears to be a high-yield savings product is, in reality, an unsecured loan to a lightly regulated entity.
The crypto industry's major players have evolved into multifaceted intermediaries, offering a range of services that would typically be separated among banks, brokers, and exchanges. A significant concern is 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 often resemble unsecured lending more than savings and lack transparency in how the assets are utilized. Users of these platforms frequently relinquish control and sometimes ownership of their digital assets, which are then used for lending, trading, or market-making strategies, with customers receiving a share of the profits generated. This arrangement is similar to traditional bank deposits but without the insurance and stability that conventional finance provides. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, where users are exposed to the solvency of the platform in the event of losses.
The BIS warns that the system is built on leverage, opacity, and deposit-like promises without protection, as evident in the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets.