The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing 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 exchanges have evolved into complex financial institutions, offering a range of services that would typically be provided by separate entities such as banks, brokers, and exchanges. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a way to generate passive income from their cryptocurrency assets. However, these products are often structured more like unsecured loans than savings accounts, and users may be exposed to significant risks.
The report notes that users of these platforms often relinquish control of their assets, which are then used for lending, trading, or market-making activities, with returns paid to customers as a share of the profits generated. Unlike traditional banking, these arrangements lack insurance and transparency, leaving users vulnerable to losses. The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these unregulated financial activities, and warns that users are exposed to the solvency of the platform in the event of losses. The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, highlighting the potential for rapid destabilization in these markets.