by Bitcoinist
The convergence of decentralized finance (DeFi) and AI has become one of the biggest narratives in web3, a subsector now known – perhaps inevitably – as DeFAI. A rapidly growing offshoot of the crypto-economy, DeFAI involves the use of intelligent ‘agents’ to simplify and automate on-chain activities like trading, staking, and lending. The objective? Profit, of course. Isn’t it ever?
The fundamental premise is rather straightforward: AI systems can process vast reams of on-chain and off-chain data more efficiently than humans. Meaning they can also better identify and exploit market opportunities in the permissionless DeFi space. Leaving their human masters free to write poetry or, more likely, make memes.
At its core, DeFAI represents a paradigm shift in how we interact with DeFi, bringing a level of technological sophistication and automation to the general degeneracy conducted by human traders. The idea of AI-managed web3 wallets and portfolios isn’t pie in the sky either, with agentic ecosystems now very much a reality.
Democratizing DeFi
The biggest promise of DeFAI, aside from the potential profits it can engender, is its potential to simplify crypto’s inherent complexity, making the industry more accessible to mainstream or ‘normie’ users. Just as search engines acted as a gateway to the internet for many, AI-powered interfaces could help newcomers navigate the often intimidating world of decentralized finance.
This democratization is already visible in the integration of AI into application front-ends, where intelligent interfaces help users understand and interact with various dApps. Proponents of AI-driven DeFi believe it could establish the foundation for more intelligent governance systems and personalized financial strategies, with services tailored to individual user needs and risk preferences.
Web2 Agents Deserve Web3 Tech
Of course, AI agents aren’t only being deployed in web3. Back in the real world (since spending a day in DeFi can feel like a waking fever dream), they’re leveraged to handle mundane tasks like invoice processing and spreadsheet management. While their use benefits office managers and accountants, the truth is that blockchain tech and AI agents go together like peas and carrots.
The nature of public ledgers means AI agents stand to benefit from greater autonomy and efficiency by jumping ship. After all, the ability to make friction-free cross-border payments with instant settlement is one of blockchain’s greatest strengths. Deploying web2 agents in DeFi is analogous to removing the shackles and giving them operational freedom.
Which is not to say agents somehow deserve this freedom. Ultimately, it’s just more efficient to deploy them in an environment where they can generate maximum value, free from burdensome compliant constraints, business hours, and legacy systems.
There is also the tantalizing prospect of traditional enterprises joining their bots in the flight to web3. In the near future, retailers could employ DeFAI agents for automated financial settlement, while corporations might utilize AI for sophisticated treasury management.
DeFAI’s Pioneering Projects
Multitudinous projects are now using AI in some form or other to make strides in DeFi. Take Hey Anon as an example, a project making waves with its innovative Automate framework. Intended for integration into DeFi protocols, this recently launched TypeScript-based solution enables agents to manage on-chain interactions with unprecedented security and simplicity.
The key lies in its implementation of a deterministic, schema-based format for describing blockchain actions (swap ETH for USDC if ETH > X, for example). A format that enables Automate to eliminate the risk of AI ‘hallucinations’ when processing commands. Moreover, as highlighted in a recent post on X, it raises the prospect of web2 systems seamlessly integrating with web3’s advanced tooling.
Another player on the rise is Singularity Finance, which envisions itself as “the financial engine of AI.” An EVM-compatible Layer-2 blockchain combining high throughput and low fees, it boasts features like Optimistic Rollups and account abstraction and is designed to extend the functionality of Ethereum.
Singularity Finance empowers developers and innovators to build and deploy AI-focused apps and services that benefit from deep liquidity and increased accessibility – particularly owing to its integrated compliance features like onchain identity verification and AML checks. It is hoped these aspects will instil confidence in traditional web2 companies contemplating blockchain adoption.
Flare Network, meanwhile, is a Layer-1 blockchain focused on enabling interoperability between disparate chains and dApps. Of late, the network has become linked to DeFAI thanks to its introduction of Consensus Learning (CL), a fresh approach that leverages distributed ledger technology to create decentralized AI models.
CL sets the scene for a collaborative AI development without jeoparizing data privacy or security. Participants can develop personalized local models using their private data, then share only their model outputs via a secure gossip protocol. This approach could prove particularly useful in data-sensitive fields like healthcare, where the combination of enhanced accuracy and strong privacy protection could lead to better patient outcomes.
The Future of Financial Automation
The rate of progress in DeFAI suggests a future in which AI-driven financial automation becomes the norm, not the exception. From everyday business transactions to complex financial strategies, the combination of AI’s tremendous processing power and blockchain’s trustless nature could completely transform our daily financial interactions.
This transformation extends beyond simple automation, too. Singularity Finance’s real-world assets (RWA) tokenization framework, for instance, demonstrates how DeFAI can enable the tokenization of AI compute resources and the monetization of AI agents. Such innovations could lead to entirely new markets and financial products.
Whatever happens next in DeFAI, chances are it won’t be boring.