In late 2025, the downfall of the COAI token wiped out more than $116.8 million in investor funds, revealing significant weaknesses within the cryptocurrency sector. These issues are especially pronounced in developing regions where regulatory systems are either inconsistent or still evolving. The COAI debacle—marked by excessive centralization, lack of transparency, and unstable algorithms—highlights the urgent necessity for stronger regulatory measures and effective risk management. As Southeast Asia and similar markets deal with the aftermath, the COAI case stands as a powerful warning about the dangers of regulatory loopholes and insufficient oversight.
The downfall of COAI was not an accident but the result of deliberate exploitation of the system’s vulnerabilities. Bitget’s analysis revealed that nearly 88% of the token’s supply was held by just ten wallets, giving insiders the power to manipulate prices and orchestrate a pump-and-dump scheme. The project’s algorithmic stablecoins, xUSD and deUSD, lost their dollar peg during a liquidity crisis, sparking panic selling and causing the token’s value to plummet by 88%.
COAI took advantage of unclear regulations, particularly under the U.S. CLARITY Act, and operated freely in regions like Southeast Asia where enforcement was lacking. By October 2025, industry experts had already labeled COAI as a major scam, drawing parallels to notorious frauds such as MYX Finance. However, the absence of coordinated regulatory intervention allowed the scheme to expand until its eventual collapse.
The COAI incident sheds light on the broader issue of inconsistent regulation in emerging markets. While some countries—like Singapore, Hong Kong, and South Korea—made significant progress in 2025 by introducing clearer crypto regulations, many regions remain ill-equipped to prevent or address such frauds. For example, Hong Kong’s Stablecoins Ordinance, finalized in May 2025, now mandates that stablecoin issuers obtain licenses and meet capital requirements under the Hong Kong Monetary Authority. South Korea’s Digital Asset Basic Act, introduced in June 2025, also proposes a licensing framework for stablecoin issuers, aiming to close the gaps exploited by COAI.
Despite these advancements, regulatory gaps persist. Japan’s 2025 update to its trust-based stablecoin reserve rules—allowing up to half of reserves in low-risk financial assets—reflects a cautious yet adaptable approach. Meanwhile, Singapore’s expansion of the Financial Services and Markets Act (FSMA) to cover Digital Token Service Providers serving overseas clients demonstrates a proactive stance on cross-border risks. Nevertheless, regulatory arbitrage continues to be a problem, as bad actors seek out jurisdictions with weaker controls.
Industry specialists stress the importance of proactive risk management for both investors and policymakers. A Medium report on crypto enforcement trends emphasizes the need for strong compliance systems, including precise asset classification, customized pre-clearance policies, and advanced monitoring tools. For investors, conducting thorough due diligence on third-party platforms and adhering to Anti-Money Laundering (AML), Know Your Customer (KYC), and Know Your Transaction (KYT) standards is essential.
Growing concerns in Southeast Asia about crypto mining—due to energy usage and scam risks—further highlight the necessity of aligning with updated regulatory standards. As authorities in the region increase scrutiny, market participants must adapt to avoid disruptions. For instance, banks handling crypto assets are encouraged to implement robust transaction monitoring to identify suspicious activities.
The COAI token scandal serves as a crucial lesson for both investors and regulators. Although emerging markets are starting to address regulatory weaknesses, the incident demonstrates that enforcement and policy development must keep up with technological innovation. Investors should prioritize transparency and compliance, while regulators need to work towards harmonized international standards to prevent similar incidents. As Southeast Asia and other regions refine their regulatory approaches, the lessons learned from COAI will be instrumental in creating a more secure and resilient crypto environment.