The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to those of traditional banks, including lending and yield products, but lack the protective measures and insurance that conventional financial institutions provide. According to the report, what appears to be a high-yield savings product is in reality an unsecured loan to a lightly regulated entity. The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically offered by separate entities such as banks, brokers, and exchanges. A key concern is the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means to generate passive income from their crypto assets, but are structured more like unsecured lending than savings.
These platforms essentially accept deposits and reinvest them into high-risk activities without the stability safeguards present in traditional banking. In many cases, users relinquish control and sometimes ownership of their digital assets to the platform, which utilizes the funds for various strategies, with customers receiving a share of the generated profits. However, these arrangements lack the insurance and transparency offered by traditional finance, leaving users exposed to the platform's solvency in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the vulnerabilities present in the industry, highlighting how users are exposed to significant risks due to the lack of protection.
The BIS also references the 2025 flash crash, which triggered substantial forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can rapidly escalate.