The Bank for International Settlements has issued a report highlighting the growing trend of cryptocurrency exchanges offering financial services similar to those of traditional banks, such as lending and yield products, but without the same level of protection for users. According to the report, these services, which include 'earn' and yield products, are often marketed as a means for retail users to generate passive income from their crypto assets, but in reality, they function more like unsecured loans to lightly regulated 'shadow banks'. The report notes that the largest players in the crypto industry have evolved into multifaceted intermediaries, combining services that are typically separated across banks, brokers, and exchanges.
A key concern is the rapid growth of 'earn' and yield products, which are widely promoted to retail users despite being structured more like unsecured lending than savings. The report warns that these platforms essentially take deposits and reuse them for high-risk activities without the stability safeguards found in traditional banking. In many cases, users of crypto exchanges relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes the funds for lending, trading, or market-making strategies, with returns paid to customers being a share of the profits generated from these activities. However, these arrangements lack the insurance and transparency offered by 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, highlighting how users are exposed to significant risks. The BIS also references the flash crash of October 2025, which resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how quickly these dynamics can escalate.