COAI Token Fraud Unveiled and Its Impact on DeFi Safety: Evaluating Regulatory Preparedness and Shortcomings in Investor Safeguards within Developing Cryptocurrency Markets

Once seen as a symbol of in the AI-powered crypto sector, the COAI token has now become a warning for those investing in decentralized finance (DeFi). In November 2025, the COAI Index experienced a sharp decline, brought on by a combination of leadership failures, unclear regulations, and widespread panic throughout the industry. The downfall, sparked by a crisis within C3.ai's management and a major lawsuit, revealed deep-rooted weaknesses in DeFi systems—especially in developing regions where .

Unclear Regulations and the CLARITY Act’s Mixed Impact

The proposed CLARITY Act made matters worse for the COAI token, leaving AI-related crypto projects in a state of legal uncertainty. Although the bill was intended to clarify what qualifies as an AI token, its ambiguous wording led to confusion, discouraged large investors, and increased market instability

. This indecisive approach stands in stark contrast to the U.S. Securities and Exchange Commission’s (SEC) firm position, which based on the Howey Test, while the Commodity Futures Trading Commission (CFTC) considers them commodities. This overlapping oversight has resulted in fragmented investor protections, creating loopholes that schemes like COAI can exploit.

At the same time, the Bank of England has moved quickly to update its stablecoin rules to match U.S. timelines, reflecting a worldwide effort to clarify regulations. Still, requirements for reserve audits and redemption processes—crucial for DeFi’s liquidity—remain controversial, as issuers find it difficult to meet compliance demands without sacrificing efficiency

.

Southeast Asia: Center of Scam Activity and Regulatory Shortcomings

Developing regions, especially Southeast Asia, have become major hubs for international crypto fraud. The U.S. Department of Justice (DOJ) launched the "Scam Center Strike Force" in 2025,

in Cambodia, Myanmar, and Thailand that steal nearly $10 billion from Americans each year. These scams, often posing as AI-based DeFi platforms, take advantage of weak oversight and legal loopholes to move money illicitly.

One notable example is She Zhijiang, a businessman born in China who was extradited to China in 2025 for operating a fraudulent compound in Myanmar’s Shwe Kokko region. His case highlights both the global reach of crypto scams and the gaps in enforcement: while authorities may shut down specific operations,

— such as internet providers and social media channels — is often left untouched.

Investor Safeguards: Navigating Between Progress and Regulation

New DeFi rules from the IRS have led to court challenges, with blockchain supporters arguing that terms like "broker" and "trading front-end service" do not accurately reflect the decentralized nature of DeFi

. Opponents argue these regulations threaten user privacy and independence, potentially driving innovation abroad. On the other hand, platforms such as ZEUSNFTX, created by Blaqclouds, Inc., by delivering scalable blockchain solutions for DeFi and NFTs. However, such efforts face challenges in markets where trust has been undermined by frequent scams.

Looking Ahead: Finding the Balance Between Progress and Protection

For DeFi to reach its full potential, regulators must take a more sophisticated approach. Developing economies need unified regulations to stop legal loopholes, while advanced markets should clarify definitions for AI tokens and stablecoins to minimize confusion. The downfall of the COAI token is a clear warning: without strong investor protections and international cooperation, the risks in DeFi will continue to overshadow its potential benefits.