Connecticut's attorney general issued a consumer alert on September 3 after a state resident could not recover $200,000 deposited into an unregulated decentralized finance (DeFi) cryptocurrency exchange following an apparent deception. Attorney General William Tong and state Banking Commissioner Jorge Perez cited financial losses, high-risk leverage, security threats, and limited recovery options as concerns.
"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," Tong said in a statement.
Platforms Named in Alert
The alert identified seven offshore DeFi platforms operating beyond U.S. regulatory oversight: GMX, Gains Network, dYdX, Aevo, Drift Protocol, Vertex Protocol, and Hyperliquid. The alert did not specify which, if any, platform was used in the $200,000 loss.
Leverage and Liquidation Risks
Many perpetual decentralized exchanges allow traders to obtain leveraged exposure directly from digital wallets without purchasing underlying assets. Connecticut officials warned that some offshore platforms offer leverage of 50x, 100x, or up to 250x, meaning small price movements can eliminate deposited collateral entirely.
Perpetual contracts carry liquidation, funding-rate, smart-contract, and oracle risks. In May, one trader's $20.32 million bitcoin short position using 40x leverage was approximately 1.5 percent away from forced liquidation after depositing 499,900 USDC as collateral.
Synthetic Assets and Limited Oversight
The alert cautioned that perpetual contracts tied to companies including Apple, Tesla, Nvidia, and SpaceX represent leveraged bets on synthetic prices rather than actual shares. Platform operators can unilaterally change prices, remove assets from trading, and halt both trading and customer withdrawals.
British regulators have separately raised consumer-protection concerns about Hyperliquid, listing it as an unauthorized firm that may target people in the United Kingdom. The Financial Conduct Authority warned that users would not receive protection from the Financial Ombudsman Service or Financial Services Compensation Scheme.
Related Fraud Cases and Recovery Scams
Connecticut officials also referenced a separate case in 2025 where another state resident lost $228,000 through a fraudulent cryptocurrency opportunity. That case involved a retired physical therapist whose investment and retirement accounts were depleted after an online operation promised returns and solicited repeated payments.
Officials cautioned that supposed recovery specialists or people presenting themselves as attorneys may demand upfront fees following an initial loss. The FBI previously warned that criminals use artificial intelligence-generated videos, spoofed government websites, and false recovery promises to target earlier fraud victims.
Consumer Protections
Connecticut's alert urges residents to verify whether crypto services are registered, retain transaction and communication records, and report suspected scams promptly. State officials noted that decentralized transactions generally remain irreversible even when other consumer safeguards apply.
