A recent report by the Bank for International Settlements highlights the growing trend of crypto exchanges offering services akin to traditional banking, such as lending and yield products, but without the same level of protection. The report notes that these services, which include 'earn' and yield products, are often marketed to retail users as a means to generate passive income from their crypto assets, but in reality, they function more like unsecured loans to lightly regulated entities.
The largest players in the crypto industry have evolved into multifaceted intermediaries, bundling services that would typically be separated across banks, brokers, and exchanges. The rapid growth of these products, which promise attractive returns but are structured more like unsecured lending than savings, is a major concern. Users of these platforms often relinquish control and sometimes ownership of their digital assets, which are then used for various activities such as lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated. However, these arrangements lack the insurance and transparency offered by traditional finance, 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 weaknesses prevalent in the industry, emphasizing that the system is built on leverage, opacity, and deposit-like promises without protection. The flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, further highlights the risks associated with these dynamics.