The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services akin to traditional banking, including lending and yield products, but without the same level of protection. This shift has led to the creation of 'multifunction cryptoasset intermediaries' that bundle services typically provided by separate entities such as banks, brokers, and exchanges.
The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means to generate passive income from their crypto assets. However, these products are structured more like unsecured loans than savings vehicles, and their attractiveness can be misleading.
By taking deposits and reinvesting them into high-risk activities without the stability of traditional banking, these platforms expose users to significant risks. The lack of transparency and insurance in these arrangements leaves customers vulnerable, as they essentially hold an unsecured claim on the intermediary. The report cites the collapse of Celsius Network and FTX as examples of the weaknesses prevalent in the industry, emphasizing that the failures were not solely due to poor management but also a result of a system built on leverage and opacity.
The BIS also references the October 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, illustrating how these dynamics can quickly escalate.