The Bank for International Settlements has released a report expressing concerns over cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, without providing the same level of protection as conventional financial institutions. According to the report, these services, which appear to be high-yield savings products, are in reality unsecured loans to lightly regulated entities.
The report highlights 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, but are structured more like unsecured lending than savings. The biggest concern is that these platforms take deposits and reuse them for risky activities without the stability safeguards found in traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then utilizes the funds for various strategies, with the returns paid to customers being a share of the generated profits. However, these arrangements lack the insurance and transparency provided 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 within the industry, emphasizing that the system is built on leverage, opacity, and unprotected deposit-like promises. The BIS also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how these dynamics can quickly escalate.