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…
Read More: A combination of AI and DeFi could benefit both industries