The Bank for International Settlements has issued a report highlighting the growing trend of cryptocurrency exchanges offering bank-like services, including lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these services, which include stablecoin yields and other DeFi 'earn' products, are essentially unsecured loans to lightly regulated 'shadow banks.' The report notes that the largest players in the crypto industry 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 rapid growth of 'earn' and yield products is a major concern, as they are often marketed to retail users as a means of generating passive income from their crypto assets, but their structure is more akin to unsecured lending than traditional savings. These platforms take deposits and reinvest them in high-risk activities without the safeguards that stabilize traditional banking.
In many cases, users relinquish control and ownership of their digital assets to the platform, which uses the funds for various strategies, with customers receiving a share of the profits. However, these arrangements lack the insurance and transparency of 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 weaknesses in the industry, highlighting how users can be affected by poor management, leverage, and lack of protection. The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, demonstrating how quickly these risks can escalate.