The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing banking services, such as lending and yield products, without the protection offered by traditional financial institutions. According to the report, these services are akin to unsecured loans to lightly regulated entities. The crypto industry's largest players have evolved into multifunctional intermediaries, offering a range of services that would typically be separated across banks, brokers, and exchanges. The report highlights 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 rather than savings, and their structure poses significant risks. The report notes that these platforms effectively take deposits and recycle them into high-risk activities without the safeguards that make traditional banking stable. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for lending, trading, or market-making strategies.
The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the insurance and transparency offered by traditional finance. The report warns that users are exposed to the platform's solvency in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses in the industry.
The BIS also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting the potential for rapid destabilization.