The Bank for International Settlements has issued a warning that cryptocurrency exchanges are increasingly providing services akin to traditional banking, such as lending and yield products, without offering the same level of protection to users. According to the report, these services, including those labeled as "high-yield savings products," are essentially unsecured loans to under-regulated entities. The crypto industry's major players have evolved into multifaceted intermediaries, combining services that are typically separated among banks, brokers, and exchanges. The rapid growth of "earn" and yield products, which are widely marketed to individual users as means to generate passive income from their crypto assets, is a significant concern.
These products often promise attractive returns but are structured more like unsecured lending than savings. The report notes that these platforms operate by taking deposits and reinvesting them into high-risk activities without the stability safeguards found in traditional banking. Users of crypto exchanges often relinquish control and sometimes ownership of their digital assets to the platform, which then utilizes these funds for various strategies like lending, trading, or market-making.
The returns paid to customers are a share of the profits generated from these activities, similar to bank deposits but lacking the insurance and transparency of traditional finance. The report highlights the risks faced by users, citing the collapses of Celsius Network and FTX as examples of the weaknesses prevalent in the industry. It also references the flash crash of October 2025, which led to an estimated $19 billion in forced liquidations across crypto derivatives markets, as an illustration of how quickly these dynamics can escalate.