The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges 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, which include 'earn' and yield products, are essentially unsecured loans to lightly regulated entities.
The crypto industry's largest players have transformed into multifaceted intermediaries, combining services typically offered by 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 major concern.
These products, while promising attractive returns, are structured more like unsecured lending than traditional savings. The report warns that these platforms are engaging in risky activities with user funds, sans the safeguards that make traditional banking stable.
Users often relinquish control and ownership of their digital assets to the platform, which then utilizes the funds for various strategies, with the returns paid to customers being a share of the generated profits. This arrangement lacks the insurance and transparency offered by 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 prevalent in the industry, emphasizing that the failures were not just a result of poor management but a flawed system built on leverage, opacity, and unprotected deposit-like promises. The report also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can quickly escalate.