The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the corresponding protections. According to the report, these services, which include 'earn' products, are essentially unsecured loans to lightly regulated entities, posing significant risks to users. The crypto industry's largest players have evolved into multifaceted intermediaries, bundling services that would typically be separated across different financial institutions.
The rapid growth of 'earn' and yield products, widely marketed to retail users as a means to generate passive income, is particularly concerning. These products often promise attractive returns but are structured more like unsecured lending than savings, lacking the stability and safeguards of traditional banking. Users of these platforms often relinquish control and ownership of their assets, which are then used for various activities, with returns paid out as a share of the profits.
However, these arrangements lack the transparency and 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, emphasizing that the failures were not just a result of poor management but a systemic issue stemming from leverage, opacity, and unprotected deposit-like promises. 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 risks can escalate.