A recent report from the Bank for International Settlements highlights that cryptocurrency exchanges are increasingly providing services akin to traditional banking, including lending and yield products, but without the protective measures in place. This shift has led to the emergence of 'multifunction cryptoasset intermediaries,' where services typically separated across banks, brokers, and exchanges are now bundled together. The report expresses concern over the rapid growth of 'earn' and yield products, which are often marketed to individual users as a means to generate passive income from their crypto assets.
However, these products are structured more like unsecured loans than savings instruments, posing significant risks. By using these platforms, users may relinquish control and ownership of their assets, which are then utilized for lending, trading, or market-making strategies. The returns paid to customers are a share of the profits from these activities, but unlike traditional banking, these arrangements lack insurance and may lack transparency regarding asset usage.
The report warns that users are exposed to the platform's solvency risk in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses prevalent in the industry. The BIS also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how these dynamics can rapidly escalate.