Regulatory Risks in Crypto Exchanges: Governance Gaps and Investor Trust in 2025 and Beyond

The 2025 regulatory landscape for cryptocurrency exchanges marked a pivotal shift in the U.S. digital asset ecosystem. The passage of the GENIUS Act and the CLARITY Act aimed to address long-standing governance gaps and restore investor confidence. However, as the year progressed, these legislative efforts revealed both progress and persistent vulnerabilities.

Regulatory Clarity and Corporate Governance: The GENIUS and CLARITY Acts

The GENIUS Act, enacted in July 2025, established a federal framework for stablecoins, mandating 1:1 reserve backing with high-quality liquid assets and requiring monthly public audits and disclosures, as described in a RAND commentary. This legislation sought to legitimize stablecoin issuance by institutional players, reducing the risk of mismanagement and enhancing transparency. Complementing this, the CLARITY Act delineated regulatory jurisdictions between the SEC and CFTC, placing digital commodities under the CFTC's purview while retaining the SEC's antifraud authority for registered entities, according to a DeSilva Law analysis. These acts aimed to create a structured environment where innovation could thrive alongside investor protections.

According to a Grayscale report, the GENIUS Act's implementation coincided with a 16% increase in stablecoin supply in Q3 2025, as institutional confidence grew. However, the CLARITY Act's stalled Senate approval left critical questions unresolved, such as the classification of digital assets as securities or commodities, creating regulatory ambiguity, as noted in a Genfinity article.

Governance Failures and Investor Trust Erosion

Despite these legislative strides, 2025 also witnessed high-profile governance failures that tested investor trust. The FTX collapse in late 2025 remains a cautionary tale. The exchange's opaque risk management, lack of independent oversight, and misuse of customer funds to prop up its affiliated hedge fund, Alameda Research, exposed systemic weaknesses in centralized crypto governance, as detailed in a LinkedIn case study. This event triggered a 40% drop in investor trust metrics, as measured by the Coinbase survey.

Regulatory arbitrage further complicated the landscape. While the GENIUS Act imposed strict requirements on U.S. stablecoin issuers, exchanges operating in jurisdictions with weaker enforcement-such as the $LIBRA token scandal in Argentina-exploited loopholes, leading to a 85% collapse in value and losses for 74,000 investors, according to an Analytics Insight article. These cases underscored the limitations of U.S. legislation in addressing global governance risks.

Investor Trust Metrics: Pre- and Post-Regulation

Empirical data reveals a nuanced picture of investor trust. A ScienceDirect study of 458 U.S. investors in 2022 found that trust in crypto investments was influenced by five key dimensions: technological reliability, regulatory clarity, developer transparency, societal acceptance, and asset specifications. Post-2025, regulatory clarity improved, but trust remained fragile. For instance, while 59% of institutional investors planned to allocate over 5% of assets to digital assets in 2025, 84% cited stablecoin adoption as a critical factor-highlighting the sector's reliance on robust governance (the 2025 Institutional Investor Digital Assets Survey).

The FTX collapse demonstrated how governance failures could override regulatory progress. Trust scores plummeted to 42/100 in Q4 2025 but began recovering to 58/100 by mid-2026 as the GENIUS Act's transparency requirements took effect, according to a Coinpedia report.

Emerging Risks and the Path Forward

Post-2025, unresolved challenges persist. The CLARITY Act's delayed implementation leaves digital asset classification ambiguous, while decentralized platforms continue to operate outside federal oversight, as outlined in a ComplyFactor guide. Additionally, the rise of quantum computing threats and cross-border regulatory disparities-such as the EU's staggered MiCAR enforcement-pose new risks to investor confidence, noted in a Crystal Intelligence report.

To address these issues, stakeholders must prioritize:
1. Global Harmonization: Aligning regulatory frameworks to prevent arbitrage and ensure consistent investor protections.
2. Enhanced Enforcement: Strengthening oversight of decentralized platforms and unregistered exchanges.
3. Corporate Accountability: Mandating independent audits and risk management protocols for all crypto firms.

Conclusion

The 2025 regulatory reforms marked a turning point in crypto governance, but their success hinges on addressing lingering gaps. While the GENIUS Act has bolstered trust in stablecoins, the FTX collapse and global governance failures highlight the need for continuous vigilance. As the sector evolves, investor trust will depend not only on legislative clarity but also on the industry's commitment to transparency and accountability.