The Bank for International Settlements has issued a report stating that cryptocurrency exchanges are increasingly providing services similar to those of traditional banks, including lending and yield products, but without the same level of protection. According to the report, what appears to be a high-yield savings product is actually an unsecured loan to a lightly regulated entity. The report highlights the evolution of the crypto industry's major players into multifaceted intermediaries, offering a range of services that would typically be separated across different financial institutions.
The rapid growth of 'earn' and yield products is a significant concern, as these products are often marketed to retail users as a means of generating passive income from their crypto assets, but their structure is more akin to unsecured lending. The report notes that these platforms effectively accept deposits and reinvest them in 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 uses the funds for various strategies, with the returns paid to customers being a share of the generated profits. However, these arrangements lack the insurance and transparency of 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 system's leverage, lack of transparency, and unsecured promises led to the downfall. The report also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, demonstrating how quickly these dynamics can escalate.