The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, 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 entities, offering a range of services that typically would be separated among banks, brokers, and exchanges.
The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means of generating passive income from their crypto assets. However, these products are structured more like unsecured loans than traditional savings products, and they lack the stability and safeguards of traditional banking. 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.
The returns paid to customers are a share of the profits generated from these activities, but the arrangements lack transparency and insurance, leaving users exposed to the platform's solvency in the event of losses. The report cites the collapse of Celsius Network and FTX as examples of the risks posed by these weaknesses in the industry. It 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 quickly these dynamics can spiral out of control.