The Bank for International Settlements (BIS) has warned that cryptocurrency exchanges are increasingly operating like “shadow banks,” offering services that resemble traditional banking but without comparable safeguards, according to a recent report.

The BIS said many crypto exchanges now provide lending and yield-generating products that function similarly to bank deposits, yet lack protections such as deposit insurance and prudential oversight.

These platforms are effectively

  • taking in customer assets,

  • promising returns, and then

  • deploying those funds into lending, trading, or other activities

exposing users to credit, liquidity and maturity risks typically associated with banking.

[TECH] REGULATION | Bank of International Settlements (BIS) Urges Regulation Amid Rising Systemic Risks from DeFi: The Bank for International Settlements (BIS) has issued a stark warning in its April 15 repo.. https://t.co/M7npOwUGBA via @BitcoinKE

— Top Kenyan Blogs (@Blogs_Kenya) April 29, 2025

A key concern highlighted in the report is that so-called “yield” products are, in substance, unsecured loans from users to exchanges. This leaves customers with limited protection if a platform fails, unlike traditional bank depositors who benefit from regulatory safeguards.

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The BIS also warned that the combination of

  • high leverage,

  • opaque balance sheets and

  • the reuse of customer collateral

could amplify systemic risks, drawing parallels to past financial crises.

Events such as the collapse of major crypto firms and large-scale market liquidations were cited as examples of how these vulnerabilities can materialize.

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The sudden crash exposed the structural weaknesses of the crypto market — where high leverage, thin order books, and concentrated liquidity often magnify price shocks.https://t.co/PsNw0oiFsW pic.twitter.com/aS8cbLyzw4

— BitKE (@BitcoinKE) October 11, 2025

Ultimately, the BIS cautioned that as crypto exchanges expand their financial intermediation roles, they may replicate the risks of the traditional shadow banking system raising concerns for financial stability if left insufficiently regulated.

 

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