The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services similar to those of traditional banks, such as 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, providing a range of services that typically would be separated across different types of financial institutions. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail investors as a way to generate passive income from their crypto assets. However, these products are more akin to unsecured loans than traditional savings products, and their structure poses significant risks to users.
The report notes that users of these platforms often relinquish control of their assets, which are then used for various activities such as lending, trading, and market-making. While these arrangements may offer attractive returns, they lack the transparency and insurance that traditional finance provides. The report cites the collapse of Celsius Network and FTX as examples of the risks faced by users of these platforms, and warns that the lack of regulation and oversight in the industry poses a significant threat to financial stability. The BIS also points to the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly these risks can materialize.