The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, such as lending and yield products, but without the requisite protections. This development, according to a recent report, transforms these exchanges into what can be described as 'shadow banks.' The report highlights that products marketed as high-yield savings are, in essence, unsecured loans to lightly regulated entities. The BIS notes that the largest players in the crypto industry have evolved beyond mere trading platforms, now offering a bundle of services that typically would be separated across different financial institutions. A major concern is the rapid growth of 'earn' and yield products, which are widely marketed to retail users as a means to generate passive income from their crypto assets, but often lack the transparency and stability of traditional banking.
These platforms take deposits and engage in risky activities without the safeguards that make traditional banking stable, effectively exposing users to significant risks. The report cites the collapse of Celsius Network and FTX as examples of the vulnerabilities in the system, emphasizing that the lack of protection and transparency in these arrangements leaves users highly exposed. The BIS also references the October 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as a stark illustration of how these risks can rapidly escalate.