The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly offering services akin to traditional banking, such as lending and yield products, but without the corresponding safeguards. This trend, according to the report, poses significant risks to users. The BIS report highlights that what appears to be a high-yield savings option is, in reality, an unsecured loan to a lightly regulated entity. The crypto industry's major players have evolved into multifaceted intermediaries, combining services that are typically separate in traditional finance.
A key concern is the rapid growth of 'earn' and yield products, which are widely marketed to individual users as a means to generate passive income from their crypto assets. However, these products often resemble unsecured lending more than savings, despite promising attractive returns. Essentially, these platforms accept deposits and then use them for risky activities without the stability mechanisms found in traditional banking.
Users often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes these funds for various strategies. The returns paid to customers are a share of the profits from these activities, similar to bank deposits but without the insurance. The BIS cites the collapse of Celsius Network and FTX as examples of the vulnerabilities in the system, where users are exposed to the platform's solvency risk in the event of losses.
The report concludes that the weaknesses in the industry, such as leverage and lack of transparency, can lead to rapid destabilization, as seen in the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets.