AI and blockchain might appear to be polar opposites. Blockchain technology is deterministic, transparent, and open to everyone, with every transaction recorded immutably on a public ledger. It also has a steep learning curve, requiring users to understand complex protocols.
On the other hand, AI often functions as a “black box,” making decisions based on model parameters and learning data sets, providing probabilistic rather than strictly predictable answers. What unites them, however, is that both technologies have become buzzwords in recent years – venture capital funds are running after them, and companies are working hard at implementing them.
While there are not many cases in which the synergy of both is apparent, it holds significant potential for mainstream adoption, especially in decentralized finance. Here is why:
Enhancing DeFi User Adoption
One of the major hurdles for DeFi adoption is its complexity. AI can play a crucial role in simplifying user interactions with DeFi platforms through AI-driven chatbots and virtual assistants that can guide users through complex DeFi protocols, making them more approachable and user-friendly.
Maxim Savelyev, CEO at Web3 consulting firm Empathy Consulting, notes “Mainstream users can see only the tip of the iceberg of what DeFi can offer, such as the Coinbase Wallet, while the most powerful tools remain locked within the enthusiast community due to their complexity”.
By analyzing a user’s portfolio and behavior, token trends, and whales transactions, AI can offer tailored advice, helping users make informed decisions without needing deep technical knowledge. One example is decentralized hedge fund Numerai that uses AI and machine learning to crowdsource predictions from data scientists, which are then used to trade in the stock market.
This approach shows AI’s potential to drive investment strategies in a decentralized manner. Additionally, AI-powered platforms like AlphaPoint leverage AI to analyze on-chain data and predict future DeFi asset prices, aiding users in making informed investment decisions.
Fraud Prevention And Audit
With 76 hacks in 2023 resulting in a collective loss of approximately $1.1 billion, according to Chainalysis, security is a paramount concern in DeFi. AI’s ability to detect anomalies and suspicious activities in real-time reduces fraud and maintains trust in decentralized platforms.
As Lars Nyman of cloud provider CUDO Compute highlights, “AI can increase security through anomaly detection and improve smart contract functionality via predictive analytics.”
AI can also assist in creating smart contracts, an activity previously reserved for technical practitioners. By verifying smart contracts and identifying potential vulnerabilities, AI ensures higher security standards and boosts trust in blockchain systems.
That way, decentralized exchange Uniswap employs AI to identify and block fraudulent transactions, ensuring a safer trading environment for its users. Similarly, open source protocol Aave utilizes AI-powered risk management tools to optimize loan health and collateralization requirements, showcasing AI’s role in enhancing financial products and services.
Making Blockchain Data Accessible
Blockchain’s transparency is one of its greatest strengths, but the sheer volume of data can make it difficult to derive meaningful insights. AI can bridge this gap by processing and summarizing large datasets, making blockchain data more accessible and smart contract execution more effective.
Adnan Masood from solutions provider UST underscores the importance of hybrid approaches where AI processes data off-chain while maintaining on-chain integrity. By transforming raw blockchain data into understandable insights, AI can democratize access to information, allowing users to make better decisions.
An example of this is Chainalysis, which uses AI to monitor and analyze blockchain transactions for suspicious activities, thereby enhancing security and making the data more accessible for analysis. Another blockchain protocol, Fetch.ai, integrates AI to optimize transaction timing and processing with the goal to reduce congestion.
Improving Tools For Blockchain Developers
AI can also enhance the quality of life for blockchain developers by providing low-code and copilot-like solutions. These tools can simplify the development process, reduce the need for extensive coding knowledge, and accelerate project timelines. One example is multichain protocol Guru Network, which provides a low-code solution that integrates traditional business process automation engines with AI snippets to streamline the creation of Web3 and AI applications. Developers can use pre-built components and templates, while GPT agents provide real-time, context-aware consultation from documentation and code repositories.
AI can assist in generating smart contracts, debugging code, and predicting potential issues before they arise. This not only speeds up development but also reduces the margin for error, allowing developers to focus on more strategic and innovative aspects of their projects. AI can also help with the creation of smart contracts, making the development process more accessible to non-technical practitioners.
For example, open-source framework OpenZeppelin employs AI to audit smart contracts, identifying bugs and vulnerabilities before deployment. This proactive approach ensures that smart contracts are secure and function as intended, reducing the likelihood of errors and exploits. Similarly, Ocean Protocol uses AI to develop deterministic models that align with blockchain’s deterministic nature, enhancing the overall development process.
AI is transforming the DeFi landscape, bridging the gap between complex financial technologies and everyday users. By enhancing infrastructure, improving user experience, providing robust security measures, and supporting developers, it is making DeFi more accessible and efficient.
As these technologies continue to evolve, we can expect AI to play a more impactful role in the mainstream adoption of DeFi. By leveraging AI’s analytical prowess and ability to handle large data sets, DeFi platforms can offer more secure, efficient, and user-friendly financial services, ultimately democratizing finance and empowering users worldwide.
© forbes
