BIS Report Warns Crypto Exchanges Act Like Shadow Banks, Putting Retail Funds at Risk 

Image Credit: BIS

The Bank for International Settlements (BIS) warned Thursday that major cryptocurrency exchanges have gradually transformed into unregulated shadow banks. A new BIS report said platforms are offering retail investors yield and lending products that function as unsecured loans without deposit insurance, regulatory oversight, or the transparency standards governing traditional finance.

Unregulated Deposit-Like Products Grow Without Banking Safeguards

The 38-page BIS report, which the institution noted does not necessarily reflect its official views, found that the industry’s largest participants have expanded well beyond simple trading infrastructure. 

The authors described these firms as multifunction cryptoasset intermediaries, meaning platforms that bundle services usually separated across banks, brokers, and exchanges.

BIS Flags “Earn” Products as Structurally Closer to Unsecured Lending

The report focuses specifically on so-called “earn” and yield products, which platforms actively market to retail users as passive-income tools. In practice, the report argues, these offerings are structurally different from what they appear to be. 

“What looks like a high-yield savings product is, in reality, an unsecured loan to a lightly regulated shadow bank,” the report stated.

Users who participate in these programs frequently relinquish control, and in some cases legal ownership, of their digital assets to the platform. Those funds are then deployed into lending, trading, or market-making strategies. Customer returns and their capital depend entirely on how those strategies perform. The report added:  

“From the customer’s perspective, these products are generally an unsecured claim on the intermediary. Users are fully exposed to a platform’s solvency position if losses occur.”

Celsius and FTX Collapses Cited as Templates for Systemic Failure

The BIS report uses the Celsius and FTX collapses to illustrate structural risks in yield products, arguing that the failures went beyond mismanagement. The paper uses Celsius and FTX to argue that these failures reflected structural vulnerabilities as well as weak management.

The authors further highlighted a sharp market-wide sell-off in October 2025, which triggered an estimated $19 billion in forced liquidations across crypto derivatives markets, according to the report, as evidence that these dynamics can escalate rapidly.

BIS Stops Short of Recommending Specific Regulatory Action

The report made clear that the core problem is not yield itself, but the absence of the safeguards that make deposit-taking stable in regulated finance. The authors wrote that platforms are effectively taking deposits and recycling them into risky activities, but without the safeguards that make traditional banking stable.

Despite the structural similarity to traditional bank deposits, the BIS found that crypto yield users have no insurance backstop and, in many cases, limited visibility into how their assets are being deployed.

The BIS stops short of recommending specific regulatory action, leaving open which bodies should respond and how. As yield products continue to attract retail capital, the BIS frames this gap as one of the sector’s most significant unaddressed risks.