The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, without providing the same level of protection. According to the report, these services are essentially unsecured loans to under-regulated 'shadow banks'. The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically offered by separate entities like banks, brokers, and exchanges. The report's authors express concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means to generate passive income from their crypto assets.
Despite promising attractive returns, these products are structured more like unsecured lending than savings. The platforms effectively collect deposits and redirect them into high-risk activities without the stability guarantees of traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then utilizes the funds for lending, trading, or market-making strategies.
The returns paid to customers are a share of the profits generated from these activities, similar to bank deposits but without the accompanying insurance. 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 industry's weaknesses.
The BIS also references the October 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how these dynamics can quickly spiral out of control.