The Bank for International Settlements has issued a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the same level of protection. This shift has led to concerns about the risks associated with these unsecured loans to lightly regulated entities. The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, combining services typically provided by separate entities like banks, brokers, and exchanges.
The primary concern is 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. However, these products often resemble unsecured lending rather than savings, with platforms taking deposits and investing them in high-risk activities without the stability and insurance of traditional banking.
Users of these platforms frequently relinquish control and sometimes ownership of their digital assets, which are then used for lending, trading, or market-making strategies, with returns paid to customers being a share of the profits generated. This arrangement lacks transparency and the insurance 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 in the industry, highlighting the risks associated with a system built on leverage, opacity, and deposit-like promises without protection. The BIS also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how quickly these dynamics can escalate.