Attorney General Tong Warns Connecticut Consumers Against Unregulated Overseas Decentraliized Finance (Defi) Crypto Exchanges

09/03/2026

(Hartford, CT) — Attorney General William Tong today issued a comprehensive consumer alert warning Connecticut residents about the significant financial and security risks associated with unregulated, offshore "decentralized finance" (DeFi) cryptocurrency exchanges. Operating outside of state and federal regulatory frameworks, these platforms, including GMX, Gains Network, dYdX, Aevo, Drift Protocol, Vertex Protocol, and Hyperliquid, bypass critical consumer protections and expose retail investors to substantial financial losses, predatory leverage, and serious security risks.

“These platforms are built to lure investors in with promises of easy access and bigger returns. 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. Do research before handing over any money and know what protections are in place if things go wrong," said Attorney General Tong.

“Unregulated offshore crypto platforms pose serious financial as well as other hidden risks to Connecticut consumers” said Connecticut Banking Commissioner Jorge Perez. “These entities operate outside the safeguards that legitimate regulated financial institutions are required to follow, leaving investors dangerously exposed without protection. Decentralized or not, if a platform is evading U.S. oversight, consumers should assume they have no protections when something goes wrong. Before engaging with any crypto service, verify that it is properly registered and regulated. A few minutes of due diligence can prevent devastating financial losses.”

The Office of the Attorney General 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.

Many unregulated offshore DeFi exchanges use practices that expose investors to significant risks including:

• Bypassing U.S. Laws with Virtual Private Networks (VPNs)
  These platforms claim to prohibit U.S. users to avoid domestic enforcement. However, those restrictions are easily bypassed by using virtual private networks (VPNs) and public APIs. U.S. residents are among the largest portion of users on several major offshore exchanges. For example, approximately 22.6% of traffic to Hyperliquid, the world’s largest perpetual contracts exchange, originates from the U.S.
• Predatory, High-Risk Leverage Prohibited in the U.S.
  Offshore platforms entice customers with highly leveraged products that are not available to retail investors in U.S. While U.S. regulated platforms restrict leverage limits, many offshore platforms allow leverage of 50x, 100x, or even up to 250x. At those levels, even a small market fluctuation can wipe out one’s entire investment.
• Synthetic Assets & Discretionary Market Interventions
  Many platforms offer complex “perpetual contracts” tied to foreign currencies, global commodities, and U.S. listed companies, such as Apple, Tesla, Nvidia, and SpaceX. Investors are often misled to believing they are purchasing actual shares in these companies when they are only placing leveraged bets on synthetic prices. Despite marketing themselves as “decentralized,” are controlled by centralized owners who can change prices, remove assets from trading, and unilaterally paused trading and customer withdrawals.

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.

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Twitter: @AGWilliamTong

Facebook: CT Attorney General

Media Contact:

Elizabeth Benton
elizabeth.benton@ct.gov

Consumer Inquiries:

860-808-5318
attorney.general@ct.gov

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