The Bank for International Settlements has issued a report highlighting the growing trend of cryptocurrency exchanges offering banking-like services, including lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these services, which are often marketed as high-yield savings products, are in reality unsecured loans to lightly regulated entities. The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a major concern, as these products are widely marketed to retail users as a means of generating passive income on their crypto assets, but their structure is more akin to unsecured lending than traditional savings.
The report warns that these platforms are essentially taking deposits and using them for risky activities without the stability and safeguards of traditional banking. In many cases, users relinquish control and ownership of their digital assets to the platform, which then uses the funds for lending, trading, or market-making strategies, with the returns paid to customers being a share of the profits generated from these activities. However, these arrangements lack the insurance and transparency of 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 how users are exposed to significant risks. The BIS also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how quickly these dynamics can spiral out of control.