The Bank for International Settlements has issued a report highlighting the risks associated with cryptocurrency exchanges that provide bank-like services, including lending and yield products, without the safeguards and insurance offered by traditional financial institutions. The report notes that these exchanges have evolved into multifaceted platforms, bundling services typically separated across banks, brokers, and exchanges. A key concern is the rapid growth of 'earn' and yield products, which are widely marketed to retail users as tools for generating passive income on their crypto assets, but are structured more like unsecured lending than savings.
These platforms take deposits and recycle them into high-risk activities without the stability of traditional banking. Users often relinquish control and ownership of their digital assets to the platform, which uses the funds for lending, trading, or market-making strategies, with returns paid to customers as a share of the profits generated. 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, emphasizing that the system is built on leverage, opacity, and deposit-like promises without protection. The flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, highlights how quickly these dynamics can spiral out of control.