Custodial Drift Loopholes (CEX Wrappers): Hidden Re-Centralization Risks in Stablecoins and DeFi Systems

Custodial Drift Loopholes arise when centralized exchange (CEX) custody layers wrap, intermediate, or proxy on-chain assets while retaining discretionary control over settlement, redemption, or transfer logic. Although assets appear decentralized on?chain, effective authority migrates off-chain into opaque custodial systems. This paper examines how CEX wrappers introduce hidden trust dependencies, regulatory bypass risks, and enforcement gaps that undermine stablecoin integrity and DeFi composability.