The Bank for International Settlements has released a report highlighting the growing trend of cryptocurrency exchanges offering services akin to traditional banking, such as lending and yield products, but without the corresponding protections. This shift has led to the emergence of what the report describes as 'multifunction cryptoasset intermediaries,' where services typically separated across banks, brokers, and exchanges are now bundled together. The primary 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 in reality, function more like unsecured loans.
These platforms take deposits and reinvest them into high-risk activities without the stability guarantees of traditional banking. Users often relinquish control and ownership of their digital assets to the platform, which utilizes the funds for various strategies, with customers receiving a share of the generated profits. However, these arrangements lack the transparency and insurance provided by traditional finance, leaving users exposed to the platform's solvency risks. The report cites the collapse of Celsius Network and FTX as examples of the vulnerabilities within the industry, emphasizing that the failures were not solely due to poor management but were inherent to a system built on leverage, opacity, and unprotected deposit-like promises.
The BIS also references the 2025 flash crash, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as a demonstration of how these risks can escalate rapidly.