COAI Token Collapse Exposes Systemic Risks in AI-Driven DeFi Ecosystem

Derived from Bijié Wǎng, the COAI token crash at the end of 2025 revealed systemic vulnerabilities in AI-integrated DeFi ecosystems, emphasizing the urgent need for regulatory clarity and investor protection. The token lost 88% of its value, causing over $116.8 million in losses, due to centralized control, opaque governance, and algorithmic flaws. 87.9% of the token supply was concentrated in just ten wallets, highlighting the risks of 'pseudo-decentralization.' The failure of algorithmic stablecoins xUSD and deUSD to maintain dollar pegs triggered panic selling and a self-fulfilling collapse. Experts noted that AI-driven projects often prioritize speed and hype over transparency, with COAI's management accused of orchestrating a 'pump and dump' scheme. Internal stakeholders held 99.7% of the supply, profiting from price manipulation at the expense of retail investors. The lack of transparent smart contracts and third-party audits left investors helpless when the token's value plummeted. The U.S. CLARITY Act created legal gray areas that bad actors exploited, while inconsistent enforcement and overlapping jurisdictions between the SEC and CFTC caused confusion. Globally, fragmented regulation, such as the EU’s MiCA framework, struggles to align with U.S. standards. COAI operators are believed to have operated in Southeast Asia, where weak enforcement enabled fraud. The incident exposed a clear gap in investor protection tools, as retail investors lack the technical expertise to audit smart contracts or assess token distribution models. Experts recommend AI-driven risk management platforms and blockchain analytics to monitor governance centralization and liquidity risks. Clearer regulation is essential to close legal loopholes and prevent future fraud.