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 safeguards. This evolution has transformed major crypto industry players into multifaceted intermediaries, providing a range of services that typically span multiple financial institutions. The report expresses concern over the rapid growth of 'earn' and yield products, which are often marketed to individual investors as a means to generate passive income from their cryptocurrency holdings.
These products, while promising high returns, are structured more like unsecured loans than savings accounts. Essentially, these platforms accept deposits and reinvest them into high-risk activities without the stability measures found in conventional banking. Users often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes these funds for various strategies, with customers receiving a share of the profits. This arrangement lacks the transparency and insurance found in traditional finance, leaving users vulnerable to the platform's financial health.
The report cites the collapse of Celsius Network and FTX as examples of the risks posed to users, emphasizing that these failures were not merely the result of poor management but rather a consequence of a system built on leverage, lack of transparency, and unprotected deposit-like promises. The report also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, illustrating how these dynamics can rapidly escalate.