A combination of AI and DeFi could benefit both industries

DeFi applications could be greatly improved using AI’s strengths, according to some experts.
DeFi applications could be greatly improved using AI’s strengths, according to some experts.

Artificial intelligence (AI) and decentralized finance (DeFi) have been marketed as technologies that could change the world, and according to experts, combining the two would likely create unparalleled opportunities in both industries.

DeFi is financial services built on blockchain tech that primarily involves peer-to-peer transactions using smart contracts, removing intermediaries such as banks and giving individuals direct control over financial assets.

AI, on the other hand, is a technology that can simulate human intelligence and perform tasks such as decision-making, problem-solving and data analysis at high speeds.

V, the chief scientist at BNB Chain, told Cointelegraph that AI’s ability to analyze vast amounts of data efficiently, identify patterns and make intelligent predictions could empower DeFi to optimize operations, enhance security measures and provide personalized services to users. Features such as helping audit smart contracts and determining credit scores for lending could also be improved using AI.

“Decentralizing computational resources has the potential to create a more fair and equitable AI ecosystem by providing a computationally powerful, cost-efficient and energy-saving infrastructure,” V said. 

“The increasing complexity of AI algorithms poses challenges, but Web3 technologies, with their focus on distributed computing and open collaboration, provide a promising framework for fostering collaborative AI initiatives.”

According to V, there is “some initial synergy between DeFi and AI,” and combining AI with decentralized apps could improve both industries, likely increasing the use cases for crypto and blockchain technologies in the process.

V thinks crypto and DeFi could also introduce more incentive approaches to decentralize the whole AI infrastructure in areas such as data markets and AI algorithm markets.

“If all data is treated as an asset, the data that is of higher quality will be worth more,” V said. “Since AI models are designed for diverse applications, a market for these models can emerge; users can select and purchase models that best fit their specific needs, creating a demand-driven marketplace where the focus is on matching the right AI model to the right use case.”

However, V believes that while integrating AI in DeFi platforms could bring remarkable opportunities, there are also potential security challenges.

AI allows DeFi traders to implement trading strategies through AI-powered trading bots and predictive analytics for identifying market trends. AI algorithms are susceptible to data manipulation, though, which could result in losses if everyone relies on the same flawed data model.

Related: DeFi meets AI: Can this synergy be the new focus of tech acquisitions?

United States Securities and Exchange Commission (SEC) Chair Gary Gensler voiced a similar concern in 2023 about using AI in the traditional financial markets.

According to Gensler, if mainstream financial institutions start basing their decisions on the same data models, it could lead to a herd mentality, undermining financial market stability and inadvertently triggering a recession.

AI could help solve issues in DeFi and vice versa

Sara Gherghelas, a blockchain analyst at DappRadar, told Cointelegraph that combining Web3 technology with AI could represent a “groundbreaking fusion with immense potential.”

In her opinion, AI could aid in resolving issues in the DeFi space and vice versa, with the potential to advance both fields, making financial services more efficient, secure and accessible. Gherghelas thinks the critical question we face is not if but how we will implement AI to maximize its benefits.

“AI’s ability to analyze large data sets can enhance risk assessment, fraud detection and predictive analytics in DeFi,” Gherghelas said.

“Conversely, DeFi’s transparent and decentralized ledger can provide AI with robust, tamper-proof data, improving the accuracy and fairness of AI models.”

AI is already being used in the DeFi space to help with fraud detection, identity verification and combating money laundering. Crypto exchange Binance started leveraging AI to combat

If approached thoughtfully, Gherghelas thinks a synergy of Web3 and AI could revolutionize sectors like finance, healthcare and supply chain, offering new levels of efficiency and transparency.

“This integration has the potential for innovative applications, enhanced data privacy, and robust AI models, thanks to diverse and secure data sets provided by the decentralized technology,” she said.

“However, it’s essential to navigate challenges such as scalability and interoperability, while also addressing ethical and regulatory considerations.”

Along with excitement about what AI could achieve, there is also a great deal of fear. Tech leaders such as SpaceX CEO Elon Musk have been sounding the alarm over the potential for AI misuse, even going so far as to ask for a pause on AI development.

The United States and many other countries have taken steps to regulate AI development and prevent some of the predicted worst-case scenarios from becoming a reality.

So far, only Europe has made any real progress. With the AI Act, the European Union established a framework that imposes obligations on AI development, including testing, documentation, transparency and notification duties.

Gherghelas believes integrating AI into DeFi would likely require a whole new regulatory landscape to address its implications, potentially creating another headache for regulators already struggling to keep up with the rapid growth of the AI industry.

Related: DePINs and AI positioned to be 2024 ‘power duo,’ DeFi execs predict

“It’s important to emphasize that AI is not just a fleeting trend; it’s here to stay and will increasingly become a part of our daily lives,” Gherghelas said.

“The key is to navigate this integration responsibly, ensuring that AI’s deployment is ethical, equitable and aligns with societal values,” she added.

Concerns about AI-generated content have increased exponentially in the last few years. The World Economic Forum highlighted the adverse outcomes of AI technologies in its 19th Global Risks Report.

The U.N. has also called for AI stakeholders to address the spread of false information and asked them to take “urgent and immediate” action to ensure the responsible use of AI.

Deepfakes have been flagged as a particular cause for concern. AI video tech can create computer-generated images and voices that are often indistinguishable from the real thing. Deepfakes have already been used in the film industry for de-aging actors. However, there is also a darker side to the tech. 

Recently, a phantom of U.S. President Joe Biden made calls to voters in what is suspected to be a plot to manipulate the results of the 2024 election. Music superstar Taylor Swift also found herself the victim of deepfake images after AI was used to create explicit photos of her online.

According to data from SumSub, deep fakes increased tenfold across all industries globally from 2022 to 2023.

Still early days for AI and DeFi

Speaking to Cointelegraph, Josh Tyson, director of creative content at OneReach.ai, said that in his view, “decentralization and AI are inextricably linked together — we’re just in the early phases of their relationship.”

“It seems possible that the wider adoption of AI might lead to a vastly more decentralized world,” he said.

“As people become accustomed to communicating conversational with AI and treating technology like a personal assistant, we will start thinking of technology in terms of skills rather than applications.”

In particular, Tyson points to generative AI as a potential boon to the DeFi and Web3 space for its ability to be “a great curator of information when properly trained.”

AI systems rely on vast amounts of data to learn and make informed decisions. Chatbots, in particular, have been trained using huge amounts of data and literature to help them make better and more informed responses.

Related: Can blockchain supply the guardrails to keep AI on course?

Tyson thinks software such as OpenAI’s Chatbots could provide reliable context about Web3 and DeFi’s foundations and evolution, which could be valuable to users on “both sides of the customer equation.”

“It seems like many of the issues in the DeFi space have to do with the pace of change; with an ever-evolving landscape of NFTs, apps, platforms and decentralized exchanges, it’s hard to establish a baseline understanding of the space,” he said.

“If generative AI can be leveraged to create a reliable, trustworthy and intuitive portal into the space, that could improve the industry,” Tyson added.