The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services similar to traditional banks, such as lending and yield products, but without the same level of protection for users. According to the report, these services are essentially unsecured loans to lightly regulated 'shadow banks.' The crypto industry's largest players have evolved into multifunctional intermediaries, combining services that are typically separated across banks, brokers, and exchanges. The report's authors express concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income from their crypto assets. However, these products often resemble unsecured lending more than savings, and their structure poses significant risks to users.
The platforms offering these services effectively take deposits and reinvest them in high-risk activities, but without the stability and safeguards of traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for various strategies, with the returns paid to customers being a share of the generated profits. The report notes 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 Bank for International Settlements cites the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, highlighting the risks associated with these unregulated 'shadow banks.' The report also references the October 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly these dynamics can spiral out of control.