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 without the same level of protection for users. According to the report, these services are essentially unsecured loans to lightly regulated 'shadow banks.' The crypto industry's largest players have evolved into multifaceted intermediaries, offering a range of services that would typically be provided by separate entities such as banks, brokers, and exchanges.
The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from their crypto assets. However, these products are structured more like unsecured lending than traditional savings, and their attractive returns come with significant risks. The report notes that users who invest in these products are essentially relinquishing control and sometimes ownership of their assets to the platform, which then uses the funds for various activities such as lending, trading, and market-making strategies. The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack the transparency and insurance provided 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 resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly these risks can materialize.