Table of Contents
Crypto exchanges are evolving into entities that function like banks but without the regulatory protections or deposit insurance that traditional financial institutions provide, according to a report released Thursday by the Bank for International Settlements (BIS).
The BIS found that stablecoin yields and DeFi "earn" products offered by exchanges are effectively unsecured loans to lightly regulated intermediaries, not savings products. "What looks like a high-yield savings product is, in reality, an unsecured loan to a lightly regulated shadow bank," the report said.
The 38-page paper noted that crypto exchange users often relinquish control – and sometimes ownership – of their digital assets to the platform, which then deploys those funds for lending, trading, or market-making strategies. The returns paid to users are a share of profits generated from those activities. Unlike bank deposits, these arrangements lack insurance protections and may have limited transparency around how assets are actually used.
"From the customer's perspective, these products are generally an unsecured claim on the intermediary," the report said. "These platforms are effectively taking deposits and recycling them into risky activities – but without the safeguards that make traditional banking stable."
The BIS cited the collapse of Celsius and FTX as examples of how users are exposed when these weaknesses materialize. It also pointed to the October 2025 flash crash, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, as evidence of how quickly these dynamics can spiral.
The findings add to regulatory pressure on exchange stablecoin operations, coming weeks after the FATF flagged stablecoins' growing role in illicit finance and as Tether froze $344 million in USDT tied to alleged criminal activity.
