The Bank for International Settlements has issued a report stating that cryptocurrency exchanges are increasingly providing services similar to those of traditional banks, including lending and yield products, but without the corresponding protections. According to the report, these services are essentially unsecured loans to lightly regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, offering a range of services that would typically be separated among banks, brokers, and exchanges. The rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income, is a significant concern.
These products are structured more like unsecured lending than savings and lack the stability of traditional banking. Users of crypto exchanges often relinquish control and ownership of their assets, which are then used for various activities such as lending, trading, and market-making strategies.
The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the insurance and transparency offered by traditional finance. The report highlights the risks faced by users, citing the collapse of Celsius Network and FTX as examples of the weaknesses prevalent in the industry.
It also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, demonstrating how quickly these dynamics can escalate.