The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services akin to traditional banking, such as lending and yield products, but without the protective measures that conventional financial institutions provide. According to the report, what appears to be a high-yield savings product is, in reality, an unsecured loan to a lightly regulated entity. The report highlights the evolution of the crypto industry's major players into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges. The primary concern is the rapid growth of 'earn' and yield products, which are widely marketed to retail users as tools for generating passive income from their crypto assets.
However, these products often resemble unsecured lending more than savings, lacking the stability and safeguards of traditional banking. Users of crypto exchanges often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes these funds for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated from these activities.
This arrangement is similar to bank deposits but lacks 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 prevalent in the industry.
The BIS also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can rapidly spiral out of control.