BIS Warns Crypto Exchanges Are Acting Like ‘Shadow Banks,’ Raising Risks for Investors

Crypto Yield Products Compared to Unsecured Loans

A new report from the Bank for International Settlements warns that many cryptocurrency exchanges are evolving into “shadow banks” by offering lending and yield services that resemble traditional banking products without equivalent safeguards. The 38-page report states that popular “earn” and yield programs function similarly to unsecured loans, even though they are often marketed to retail investors as passive-income opportunities.

According to the report, these platforms pool customer funds into lending, trading, or market-making strategies, effectively recycling deposits into higher-risk activities. However, unlike traditional bank accounts, these services typically lack deposit insurance, transparency requirements, and regulatory protections. The authors emphasized that from the customer’s perspective, funds placed into such programs represent unsecured claims on the intermediary rather than protected savings.

Past Collapses Highlight Systemic Weaknesses

The BIS pointed to failures at Celsius Network and FTX as major examples of risks tied to leverage, opacity, and deposit-like promises without proper protection. It also referenced the October 2025 crypto market flash crash, which triggered an estimated $19 billion in forced liquidations across derivatives markets.

The report described major exchanges as “multifunction cryptoasset intermediaries,” combining services traditionally handled by banks, brokers, and exchanges. Without stronger rules and safeguards, the BIS warned, these expanding services could leave users directly exposed to platform solvency risks during market stress.

Disclaimer

This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.