The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, such as lending and yield products, but without the corresponding protections. This development, according to a recent report, poses significant risks due to the lack of regulation and insurance typically found in conventional financial institutions. The report highlights that what appears to be a high-yield savings option is, in reality, an unsecured loan to a lightly regulated entity. The crypto industry's major players have evolved into multifaceted intermediaries, offering a bundle of services that would usually be separated among banks, brokers, and exchanges.
A key concern is 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. However, these products often resemble unsecured lending more than savings and are devoid of the stability and safeguards inherent in traditional banking. Users of these platforms frequently relinquish control and sometimes ownership of their digital assets, which are then utilized for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated.
This arrangement is analogous to bank deposits but lacks the insurance and transparency that traditional finance provides. The report cautions that users are exposed to the platform's solvency risk in the event of losses, likening these products to unsecured claims on the intermediary. The collapse of Celsius Network and FTX is cited as examples of the vulnerabilities within the industry, where poor management and a system built on leverage and opacity without protection led to significant losses.
The report also references the flash crash of October 2025, which triggered substantial forced liquidations across crypto derivatives markets, underscoring the rapid escalation of these dynamics.