The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering bank-like services, including lending and yield products, without providing the same level of protection as traditional financial institutions. According to the report, these services are essentially unsecured loans to under-regulated 'shadow banks'. The crypto industry's major players have evolved into multifaceted intermediaries, combining services typically offered by separate entities such as banks, brokers, and exchanges.
The rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income from crypto assets, is a significant concern. While these products often promise attractive returns, they are structured more like unsecured lending than savings. The report notes 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.
The returns paid to customers are a share of the profits generated from these activities, similar to bank deposits but lacking the insurance offered by traditional finance. The report warns that users are exposed to the platform's solvency in the event of losses, citing the collapse of Celsius Network and FTX as examples of the weaknesses prevalent in the industry. The BIS also references the flash crash of October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how quickly these dynamics can escalate.