A recent report by the Bank for International Settlements highlights the growing trend of cryptocurrency exchanges offering services similar to traditional banking, such as lending and yield products, but without the same level of protection for users. The report notes that these exchanges have evolved into multifaceted financial intermediaries, combining services typically provided by separate entities like banks, brokers, and exchanges. The primary concern is the rapid growth of 'earn' and yield products, which are often marketed to individual users as a means to generate passive income from their cryptocurrency assets. However, these products are structured more like unsecured loans than savings accounts, posing significant risks to users.
The report emphasizes that these platforms essentially accept deposits and redirect them into high-risk activities without the stability and safeguards inherent in traditional banking. Users often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes these funds for various strategies like lending, trading, or market-making, with the returns paid to customers being a share of the generated profits. This arrangement lacks the transparency and insurance provided by traditional financial systems, leaving users exposed to the platform's financial stability in the event of losses. The report cites the collapses of Celsius Network and FTX as examples of the vulnerabilities present in the industry, where poor management and a lack of protection led to significant issues.
It also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, illustrating how these dynamics can rapidly escalate.