The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing financial services similar to those of traditional banks, such as lending and yield products, but without the same level of protection for users. According to the report, these services, which include stablecoin yields and other DeFi 'earn' products, are essentially unsecured loans to lightly regulated entities. The report highlights the evolution of major crypto industry players into multifunctional intermediaries, offering a range of services that would typically be separated across different financial institutions. 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, is a major concern.
These products are structured more like unsecured lending than traditional savings, and they lack the stability and safeguards of traditional banking. Users of these platforms often relinquish control and sometimes ownership of their digital assets, which are then used 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 they lack the insurance and transparency of traditional finance. The report warns that users are exposed to the platform's solvency in the event of losses and cites 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 dynamics can spiral out of control.