The Bank for International Settlements has released a report highlighting the risks associated with cryptocurrency exchanges offering bank-like services, such as 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 lightly regulated entities.
The crypto industry's major players have evolved into multifunctional intermediaries, providing a range of services that would typically be separated across banks, brokers, and exchanges. The report expresses concern over the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means of generating passive income from their crypto assets.
However, these products are often structured more like unsecured lending than savings, and their attractive returns come with significant risks. The platforms offering these products take deposits and reinvest them in risky activities without the safeguards that make traditional banking stable. In many cases, users relinquish control and ownership of their digital assets to the platform, which uses the funds for various strategies. The returns paid to customers are a share of the profits generated from these activities, but these arrangements lack the insurance and transparency 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 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, highlighting the potential for rapid instability in these markets.