The fundamental truth about technology is that it evolves and gets better. The same thing happened with decentralized finance (DeFi) when it was introduced to AI. It gave birth to DeFAI, which combines DeFi and artificial intelligence. The term was coined by the crypto enthusiast and entrepreneur Daniele Sesta in 2023. It was his experiments with merging AI and DeFi that brought forward this concept.
So what does DeFAI actually do? It surely sounds very tech-savvy, but does it really have any utility yet? For that, one needs to keep an eye on its advancement. The easy-to-understand fact about DeFAI is that it uses AI to make blockchain more accessible and efficient. This new technology solves the complexities of decentralized networks that users currently face. It brings the analytical abilities of AI into DeFi and makes it more intelligent for everyone.
To understand how it achieves that, one needs to dig deeper into it. Well, anyone who’s a bit familiar with AI can conjecture a few things for sure. The first thing that strikes us when we hear artificial intelligence is its capacity to do comprehensive research in seconds. Besides that, it gives answers to your particular questions and executes specific tasks, too. And when this smart tech collaborates with a revolutionary fintech, the results are beyond expectations.
Deciphering DeFAI And Its Impact
To learn why DeFAI is a big deal, one must know what the existing DeFi lacks. First, besides AI, no other technology has the ability to research and analyze. Yes, bots came before AI, but they have limited functionality. They are pre-programmed and not expandable. Artificial intelligence, on the other hand, has its own mind. It consistently learns from the internet and keeps updating its database to stay relevant.
And that’s exactly what empowers technologies like decentralized finance. DeFi operates on blockchain, a decentralized system that runs on a consensus mechanism. It means that it doesn’t have a centralized control. Every member of this network contributes, and every single transaction is recorded indelibly. It’s a groundbreaking concept that transforms the way we deal with our money. It replaces banks and all centralized governance systems.
But just being innovative doesn’t make technology handy. We have been using centralized systems since the beginning of the modern world. The practice that we’re used to for centuries can’t be changed so easily. Blockchain and crypto have shown their potential to the world. They are no longer treated as a fad. On the contrary, many governments are mulling over the integration of this technology through a legal framework.
However, wrapping one’s mind around decentralisation isn’t easy. It’s complex, technical, and not easy to integrate into our current economic and organizational regimen. That’s where DeFAI steps in. It simplifies the current protocols of DeFi and makes them more user-friendly. This technology works on multiple aspects of blockchain to make it easier. It makes things better for investors, developers, entrepreneurs, and potential blockchain users, too.
Merits that Make DeFAI a Game-Changer
DeFAI smartens blockchain and makes it a multitasker. It makes DeFi appealing and feasible to every potential user.
Trade Automation
This is indeed a big one for crypto enthusiasts as most of them are investors. The AI-driven trading makes things much better for the buyers/sellers of digital assets. As we know already, artificial intelligence analyzes the markets 24/7. Analysis is undoubtedly the most important factor in trading. DeFAI makes it possible for every trader. It replaces emotionally-driven decisions with rational steps, maximizes profits and minimizes losses.
Process Optimization
When it comes to yield farming or staking, DeFAI makes things way more efficient. The AI agents identify every opportunity and inform investors about it. It also streamlines the fund allocation and makes it more growth-oriented. The new technology does a much better job than DeFi in prioritizing traders. It favors them while passing on all the advantages of decentralized protocols.
Better Asset Management
The continued learning of market dynamics and volatilities enables AI to optimize asset management. Earlier, the digital asset holders had to do all the hard work. They had to consistently read the market updates, do comparisons, and check trading history as well. Even after all this, they had to face disappointment on various fronts. With DeFAI, the analysis is accurate, bias-free, and conducive to the portfolio.
Improved User-Experience
Using blockchain-based platforms isn’t very easy. Especially if you’re doing more than just buying and selling assets. For beginners, it can even be very confusing. Thankfully, AI is fixing it and making it easier. This new technology is helping developers come up with simpler interfaces. It is letting them change the appeal of DeFi applications. Integrated with better algorithms, the DeFAI programs are letting crypto users plan, manage, and execute effortlessly.
Diminished Risk
The acumen of AI lessens the risk factors in crypto trading and management too. Its evaluation of markets helps traders maintain a profitable portfolio. Moreover, it warns them about any potential danger that could cause a loss. The AI agents could identify a scam or fraudulent activity better than humans. They can find patterns or red flags and tell the investors about them. It certainly makes decentralized finance safer, as many traders have lost money earlier due to scams.
Automated Upgrades
AI-based platforms don’t require human intervention to upgrade. Utilizing automation, they keep getting better and giving the results you want. It makes the whole ecosystem more credible for investors. So far, investors have used bots that have limited functionality. They also needed to be updated from time to time, which is time-consuming and costly too. DeFAI changes all that with automatic upgrades. It gives investors fewer hassles while making investments safer.
All these points make DeFAI a groundbreaking innovation. While there’s no doubt about it, one needs to consider that it’s still in its incipient phase. DeFAI is a novel concept, and it’s still making initial progress. So, adapting this combination of two technologies is easier said than done. In fact, it could be quite challenging for startups or growing enterprises.
Factors Making DeFAI Adaption Difficult
Every entrepreneur, trader, or crypto enthusiast should think of the below-mentioned points before using a DeFAI-powered platform.
Tricky Technicalities
Integrating artificial intelligence into blockchain is no cakewalk. It requires profound knowledge of both technologies and plenty of work. All of this makes DeFAI development an uphill battle. In terms of expertise as well as investment, it becomes a big challenge.
Dependence on Data
AI achieves all great results with the help of a ceaseless supply of high-quality data. Thus, to make DeFAI, one needs to make sure that there’s no dearth of data. However, in the decentralized ecosystem, data transmission could be inconsistent and even difficult to import.
Security Concerns
AI deals with reams of data with the motto of providing the best insights. It does not prioritize safety or privacy per se. Blockchain, on the other hand, primarily focuses on security. Thus, the base structure of AI poses a risk to decentralization.
Regulatory Uncertainties
Crypto and AI have drawn the attention of regulators. Both technologies have the potential to bring major changes to our current economic and organizational structure. Most governments are still trying to come up with a legal framework for both crypto and AI. Thus, there’s high uncertainty about their future limitations and regulations.
Possibility of Biases
AI heavily depends on historical data to produce search results. It sums up insights from different sources that may not necessarily be verified. Hence, there is always a chance of seeing biased data on DeFAI applications. This factor may also impact the forecasting and analytical capabilities of AI.
High Initial Investment
As mentioned above, the creation of DeFAI could be quite cost-intensive. Considering the expertise and time taken in the process, the development cost could go through the roof. As a result, it becomes very difficult for small entrepreneurs to undertake a DeFAI project.
Conclusion
DeFAI certainly offers limitless possibilities and expedites blockchain adoption. It makes the decentralized structure less complicated and user-friendly for everyone. Many experts opine that the initial challenges in its acceptance will be overcome soon. When that happens, DeFAI will certainly make digital assets and its merits accessible to everyone. In the next few years, the projects using this technology will play a pivotal role in DeFAI’s perpetuation in the DeFi space.
