The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering banking-like services, including lending and yield products, without providing the necessary protection to users. According to the report, these services are essentially unsecured loans to lightly regulated 'shadow banks'. The crypto industry's major players have evolved beyond simple trading platforms, now offering bundled services that typically would be separated across banks, brokers, and exchanges. The report expresses concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means to generate passive income from their crypto assets.
However, these products often resemble unsecured lending rather than savings and lack the stability of traditional banking. Users of these platforms often relinquish control and ownership of their digital assets, which are then used for lending, trading, or market-making strategies, with returns paid to customers being a share of the profits generated from these activities. Unlike traditional bank deposits, these arrangements lack insurance and may lack transparency regarding the use of assets.
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 within the industry. The report also references the 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how these dynamics can quickly spiral out of control.