The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing banking services, including lending and yield products, but without the protective measures found in traditional financial institutions. According to the report, these services resemble high-yield savings products but are, in reality, unsecured loans to lightly regulated entities. The report highlights the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means to generate passive income from their crypto assets, but notes that their structure is more akin to unsecured lending than savings. The authors express concern that these platforms are taking deposits and using them for high-risk activities without the stability guarantees of 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, with customers receiving a share of the profits. However, these arrangements lack the insurance and transparency found in 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 flawed system lacking protection for users.
The report also references the October 2025 flash crash, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as an example of how these dynamics can quickly spiral out of control.