A recent report by the Bank for International Settlements highlights the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the corresponding protections. The report notes that these services, often marketed as high-yield savings products, are in reality unsecured loans to lightly regulated entities. The crypto industry's largest players have evolved into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges. The rapid growth of 'earn' and yield products is a major concern, as they are widely promoted to retail users as a means to generate passive income from their crypto assets.
However, these products are structured more like unsecured lending than savings, and their marketing often obscures the associated risks. By using customer funds for lending, trading, or market-making strategies, these platforms effectively take deposits and recycle them into risky activities without the stability-enhancing safeguards of traditional banking. Users often relinquish control and sometimes ownership of their digital assets to the platform, which then uses the funds to generate profits.
The returns paid to customers are a share of these profits, but the arrangements lack the insurance and transparency of 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.