The COAI token's dramatic collapse at the end of 2025 has underscored significant vulnerabilities within AI-integrated DeFi ecosystems. The token plummeted by 88%, resulting in losses exceeding $116.8 million, primarily due to centralized control, opaque governance, and algorithmic flaws. A staggering 87.9% of the token supply was concentrated in just ten wallets, revealing the dangers of 'pseudo-decentralization.' The failure of algorithmic stablecoins xUSD and deUSD to maintain their dollar pegs triggered widespread panic selling, leading to a self-fulfilling collapse. Accusations have emerged against COAI's management for orchestrating a 'pump and dump' scheme, with internal stakeholders holding 99.7% of the supply and profiting at the expense of retail investors. The incident has highlighted the urgent need for regulatory clarity and investor protection, as current frameworks like the U.S. CLARITY Act and the EU’s MiCA struggle to provide consistent oversight. Experts call for AI-driven risk management platforms and clearer regulations to prevent future fraud and protect investors.