The Bank for International Settlements has issued a report stating 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. The report cautions that these services, which are often marketed as high-yield savings products, are in fact unsecured loans to lightly regulated entities. The crypto industry's largest players have evolved into multifunctional intermediaries, offering a range of services that would typically be provided by separate entities such as banks, brokers, and exchanges.
The report's authors express concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income from crypto assets. However, these products are often structured more like unsecured lending than savings, and users may be exposed to significant risks. The report notes that users of crypto exchanges often relinquish control and ownership of their digital assets to the platform, which can then use these funds for lending, trading, or market-making strategies. The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the insurance and transparency offered 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 report also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting the potential for rapid instability in these markets.