The Bank for International Settlements has issued a report expressing concern over cryptocurrency exchanges offering banking services, such as lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these services, which include 'earn' and yield products, are being widely marketed to individual investors as a means to generate passive income from their cryptocurrency holdings. However, the report highlights that these products are more akin to unsecured loans than traditional savings products, and their rapid growth poses significant risks.
The crypto industry's largest players have evolved into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges. This development has led to a situation where these platforms take deposits and reinvest them into high-risk activities without the stabilizing safeguards found in traditional banking. As a result, users often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes the funds for various strategies, with customers receiving a share of the generated profits.
The report notes that these arrangements lack the transparency and insurance typically associated with traditional finance, leaving users exposed to the platform's solvency in the event of losses. The Bank for International Settlements cites the collapse of Celsius Network and FTX as examples of the vulnerabilities present in the industry, emphasizing that the failures were not solely the result of poor management but also of a system built on leverage, opacity, and unprotected deposit-like promises. The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how rapidly these dynamics can escalate.