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COAI Token Fraud: An Urgent Reminder for Developing Token Markets and the Importance of Thorough Investor Research

COAI Token Fraud: An Urgent Reminder for Developing Token Markets and the Importance of Thorough Investor Research

Bitget-RWA2025/11/22 19:24
By:Bitget-RWA

- COAI token's 2025 collapse exposed systemic risks in token economies, highlighting governance failures and regulatory gaps. - Weak oversight in emerging markets enables crypto fraud, with Southeast Asia reporting $10B annual losses from organized scams. - U.S. CLARITY Act's ambiguity over AI tokens creates legal gray areas, while MiCAR and GENIUS Act aim to clarify global regulatory frameworks. - Investors must adopt blockchain forensics and multi-layer due diligence to address vulnerabilities in tokenom

The downfall of the COAI token in November 2025 sent ripples throughout the decentralized finance (DeFi) sector, revealing deep-seated flaws in new token-based economies and highlighting the pressing necessity for thorough investor scrutiny. Once celebrated as a pioneering AI-powered cryptocurrency initiative, COAI’s collapse—triggered by leadership turmoil, unclear regulations, and governance breakdowns—now serves as a stark warning for both investors and regulators. As both U.S. and international markets contend with the aftermath, this episode exposes the fragility of token economies in areas lacking strong oversight and stresses the urgent need for clearer regulatory guidelines to safeguard investors.

Systemic Risks in Emerging Token Economies

The downfall of COAI was not an isolated incident, but rather a reflection of widespread structural issues within token economies, especially in developing regions.

points out that stablecoins, which are foundational to many token systems, can introduce major systemic threats when jointly issued by organizations in the EU and outside countries. These arrangements can lead to liquidity problems, as investors may rush to redeem tokens from EU-based issuers during times of stress, putting pressure on reserves and causing delays in payouts. This scenario closely resembles what happened with COAI, where lack of transparency and poor governance fueled panic withdrawals.

Technical flaws only add to these dangers.

, stablecoins are at risk of losing their peg—sudden drops from their intended value—due to market turmoil or eroding trust. The 2022 TerraUSD (UST) crash, which wiped out $40 billion, is a sobering example. Likewise, COAI’s unclear token structure and vague regulatory status under the U.S. CLARITY Act created loopholes ripe for abuse. The Act’s inability to specify whether AI tokens are securities or commodities has left investors facing a patchwork of rules, with the SEC and CFTC applying inconsistent standards.

Southeast Asia has become a center for crypto-related scams, with organized crime groups in Myanmar and Cambodia reportedly stealing around $10 billion each year. These schemes, which often use advanced social engineering and operate through unregulated exchanges, take advantage of weak enforcement and regulatory gaps. The case of She Zhijiang, a notorious scammer based in Myanmar, shows that even when individual fraud rings are dismantled, broader problems like complicit ISPs and lax regulation persist. These issues highlight the need for global cooperation to close regulatory loopholes and enforce stricter checks on international transactions.

Investor Due Diligence: A New Imperative

The COAI crisis has compelled investors to rethink their approach to vetting token investments.

a comprehensive strategy, involving detailed evaluations of technology, team reputation, token design, and operational security. For example, investors should carefully review white papers, examine project timelines, and audit smart contracts for risks such as reentrancy bugs or integer errors. On-chain indicators—like Network Value to Transaction (NVT) ratios and liquidity stats—are also crucial for spotting warning signs.

Regulators such as FINRA have stressed the necessity of thorough due diligence, especially for token offerings that are not registered.

, keep records of wallet access procedures, and provide balanced risk disclosures to retail clients. For instance, FINRA requires that companies offering crypto assets as securities must understand registration exemptions, governance models, and contingency plans for funding gaps. These steps are designed to reduce risks in speculative markets, where investor protections are weaker than in traditional finance.

Yet, due diligence goes beyond technical checks. It requires a shift toward greater openness and responsibility. Projects like ZEUSNFTX, which seek to restore confidence in DeFi and NFT markets, demonstrate the promise of scalable blockchain technology—but only if they implement strong governance and compliance practices. Investors should also focus on anti-money laundering (AML) procedures, including global sanctions checks and regular reviews of Politically Exposed Persons (PEP).

The Path Forward: Regulatory Clarity and Global Coordination

The COAI token scandal has exposed the shortcomings of existing regulatory systems.

of the "Scam Center Strike Force" signals a growing awareness of the need for international enforcement in regions with lax oversight. Still, as the ESRB cautions, aligning regulations across the EU, U.S., and other countries remains a major hurdle. and the proposed GENIUS Act in the U.S. represent progress, but their effectiveness depends on addressing joint issuance models and clarifying how tokens are classified.

For investors, the takeaway is unmistakable: due diligence must expand beyond standard financial reviews to include blockchain analysis, real-time transaction tracking, and smart contract evaluations. As the COAI episode shows, even advanced projects can unravel due to governance lapses and regulatory uncertainty.

Ultimately, the sustainability of token economies hinges on striking the right balance between innovation and regulation. Without consistent rules and diligent investor scrutiny, another COAI-like collapse is not a matter of if, but when.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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