The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, including lending and yield products, but without the corresponding protective measures. This trend is concerning, as it exposes users to significant risks without the insurance and stability offered by conventional financial institutions. The report highlights that major crypto industry players have transformed into multifaceted intermediaries, offering a range of services that typically would be provided by separate entities such as banks, brokers, and exchanges. A key concern is the rapid growth of 'earn' and yield products, which are often marketed to retail users as a means to generate passive income from their crypto assets.
However, these products are more akin to unsecured lending than traditional savings, lacking the stability and safeguards of conventional banking. Users of these platforms often relinquish control and ownership of their assets, which are then utilized for various activities such as lending, trading, and market-making.
The returns paid to customers are based on the profits generated from these activities, but the arrangements lack transparency and the insurance provided by traditional finance. The report cautions 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 resulted in an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how these dynamics can rapidly spiral out of control.