Connecticut Attorney General William Tong is warning consumers about what he called significant financial and security risks associated with unregulated, offshore “decentralized finance” (DeFi) cryptocurrency exchanges.
These platforms, including GMX, Gains Network, dYdX, Aevo, Drift Protocol, Vertex Protocol, and Hyperliquid, bypass critical consumer protections by operating outside of state and federal regulatory frameworks and expose retail investors to substantial financial losses, predatory leverage, and serious security risks, he said.
“These platforms are built to lure investors in with promises of easy access and bigger returns,” he said. “What they don’t advertise is that if something goes wrong, investors will be stranded with little to no recourse, while the platforms walk away with the profits. This isn’t innovation, it’s exploitation.”
Tong urged residents to research thoroughly before handing
Tong urged residents to research thoroughly before handing over any money and know what protections are in place if things go wrong.
State Banking Commissioner Jorge Perez said unregulated offshore crypto platforms posed serious financial and hidden risks to consumers.
“These entities operate outside the safeguards that legitimate regulated financial institutions are required to follow, leaving investors dangerously exposed without protection,” he said. “Decentralized or not, if a platform is evading U.S. oversight, consumers should assume they have no protections when something goes wrong.”
Consumers should verify that any crypto service
Consumers should verify that any crypto service is properly registered and regulated before engaging, Perez said.
“A few minutes of due diligence can prevent devastating financial losses,” he said.
According to Tong’s office, it is aware of at least one Connecticut consumer who was deceived into depositing $200,000 into an unregulated DeFi cryptocurrency exchange by a person who claimed to know them. The consumer is now unable to recover the funds.
DeFi platforms market themselves as open-access financial services governed by automated software and smart contracts, rather than traditional intermediaries. However, many of the largest DeFi platforms are centralized corporate operations with opaque management, often registered in offshore locations such as Singapore and the Cayman Islands to evade oversight. Unlike traditional banks and registered U.S. exchanges, which verify customer identities through Know Your Customer (KYC) requirements, offshore platforms only require a digital crypto wallet, allowing users to trade anonymously. This lack of oversight creates opportunities for illicit activity, including money laundering, evasion of sanctions, and the movement of funds by state-backed entities such as North Korean hackers.
Global financial watchdogs are increasingly taking action against
Global financial watchdogs are increasingly taking action against unregulated offshore cryptocurrency exchange platforms. In May 2026, the United Kingdom’s Financial Conduct Authority (FCA) issued a severe public warning designating Hyperliquid and its foundation as unauthorized entities. Additionally, the Monetary Authority of Singapore (MAS) placed Hyperliquid on its official Investor Alert List, designating it as one of the first “DeFi” protocols flagged globally for unauthorized derivatives activities.
Connecticut has strengthened protections for consumers in the digital asset marketplace, including new safeguards governing cryptocurrency ATMs. Even with those protections, consumers should exercise caution as cryptocurrency and decentralized trading transactions are generally irreversible.
Tips to protect yourself from DeFi cryptocurrency scams:
- Carefully research the platform and verify whether it is subject to U.S. regulatory oversight before sending any money.
- Keep records of all transactions and communications.
- Beware of scams from “recovery specialists” or individuals posing as attorneys who promise to retrieve lost funds for a fee.
If you suspect you have been targeted by an unregulated overseas exchange and are a victim of a scam, report it immediately to the Office of the Attorney General here.
