The Bank for International Settlements (BIS) says the largest crypto platforms now act like banks and prime brokers. They take deposit-like funds without facing comparable prudential rules, creating crypto shadow banking risks.
A new Financial Stability Institute (FSI) paper labels the largest crypto service providers as “multifunction cryptoasset intermediaries.” The authors argue these firms need capital, liquidity, governance, and stress testing rules similar to those of regulated banks.
Crypto’s Shadow Banking Problem
The 38-page report describes how yield and earn programs transfer ownership of customer assets to the provider. That structure creates short-term redeemable liabilities that behave like bank deposits. No equivalent of deposit insurance or central bank liquidity lines exists for crypto holders.
Margin lending, derivatives trading, and token issuance pile additional credit and market risk on top. According to the authors, this combination produces the same maturity and liquidity transformation long associated with shadow banking. The related safeguards do not apply.
The paper points to the 2022 collapses of Celsius Network and FTX as early warnings. The authors add the October 2025 flash crash to the list. That single event wiped out roughly $19 billion in leveraged positions.
Policy Gaps and Cross-Border Hurdles
Transparency remains a core weakness. Researchers reviewed terms and conditions from several large providers between November 2025 and March 2026. Many still do not publish financial statements or disclose how customer assets are deployed.
The authors recommend a mix of entity-based and activity-based regulation. Cross-border supervisory cooperation would cover lending and borrowing activities that sit outside current frameworks. Limited supervisory resources and weak reporting standards, they note, continue to hold back effective oversight.
Interconnectedness makes the risks worse. Many intermediaries trade, lend, and custody assets for each other. Stress at one major firm can cascade through the sector in days. Institutional investors have already begun shifting custody off-exchange to limit exposure.
Large crypto firms are moving deeper into traditional finance. The BIS paper signals that regulators can no longer treat them as simple trading venues. The question is how quickly national authorities will move from diagnosis to binding rules.
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