BIS Report Warns of Crypto Exchanges as Shadow Banks

The Bank for International Settlements, an international organization owned by 63 central banks and based in Basel, Switzerland, issued a report on Thursday warning that cryptocurrency exchanges are increasingly functioning as shadow banks by offering stablecoin yields and decentralized finance earn products without the regulatory protections of traditional financial institutions.

The 38-page report examines how these platforms have evolved from simple trading venues into multifaceted intermediaries that bundle services typically separated in regulated banking, brokerage, and exchange operations. It highlights the rapid growth of earn and yield products, which are marketed to retail users as ways to generate passive income on digital assets. According to the report, users often transfer control, and sometimes ownership, of their cryptocurrencies to the exchanges, which then deploy the funds into lending, trading, or market-making activities. Returns to customers represent a portion of the profits from these operations.

However, the report emphasizes that these arrangements differ fundamentally from bank deposits. "What looks like a high-yield savings product is, in reality, an...