The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, 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 under-regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, offering a range of services that would typically be separated among banks, brokers, and exchanges. The rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from crypto assets, is a significant concern.
These products are structured more like unsecured lending than savings and pose substantial risks due to the lack of safeguards and insurance. Users of crypto exchanges often relinquish control and ownership of their assets, which are then used for various activities such as lending, trading, and market-making. The returns paid to customers are a share of the profits from these activities, but the arrangements lack transparency and the insurance that traditional finance provides.
The report highlights the collapse of Celsius Network and FTX as examples of the weaknesses in the industry, which expose users to significant risks. It also cites the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can quickly spiral out of control.