The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but lacking the protective measures and oversight of conventional financial institutions. According to the report, what appears to be a high-yield savings option is, in reality, an unsecured loan to a lightly regulated entity.
The report notes that major players in the crypto industry have transformed into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges. The primary concern is the rapid growth of 'earn' and yield products, which are widely marketed to individual 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 guarantees of traditional banking.
In many cases, users relinquish control and sometimes ownership of their digital assets to the platform, which utilizes the funds for lending, trading, or market-making strategies, with customers receiving a share of the profits generated from these activities. 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 examples of Celsius Network and FTX to illustrate the weaknesses prevalent in the industry, emphasizing that the collapse of these platforms was not merely a result of poor management but a systemic issue stemming from leverage, opacity, and unprotected deposit-like promises.
The report also references the October 2025 flash crash, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how these dynamics can quickly escalate.