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Decentralized finance (DeFi) is quickly evolving, moving beyond niche crypto communities to broader global markets. Last month, BlackRock announced its BUIDL fund, tokenizing US treasuries, which now stands at over $300 million in deposits. Active addresses transacting with stablecoins are at all-time highs, and yields across the DeFi landscape have returned.
However, if our goal is for DeFi to go mainstream and become the future of France - it only makes sense to explore and leverage another one of the most important technologies of our time: AI. DeFi-AI integrations promise to enhance DeFi's efficiency, accessibility, and personalization, introducing advanced applications like AI-driven lending, intelligent yield farming strategies, automated market making, and AI-assisted portfolio management.
For those who have been following Odisea's work for some time, you know that our mission has always been centered around how we bring more people onchain, engage with critical protocols across the ecosystem, and add real-world utility and value to their lives. In this piece, we aim to explore the emerging use cases of AI-powered DeFi applications in the ecosystem, specifically those that aim to unlock new markets and more complex strategies for a broader set of users.
Below, we outline the challenges driving mass adoption of DeFi and why AI could be a key catalyst for onboarding more users. We also highlight some specific use cases alongside key actors already working on building out these solutions across the ecosystem.
At its peak, DeFi TVL reached a whopping $180 billion (!). That's right. Peer-to-peer finance, providing the staked security for permissionless coordination layers and unlocking new financial substrates for digital assets, among other exciting use cases, skyrocketed in value, reaching a higher value locked than many of the world's nations’ annual GDP.
Since DeFi's inception, hundreds of thousands of crypto natives have played around with farming yams, taking out over-collateralized loans against their ETH, making cross-border payments, lending to SMEs in emerging markets, staking, re-staking, and re-staking their re-staked ETH.
And yet, as entropy continues to unfold not just in DeFi, but throughout crypto - with the never-ending onset of new dApps, protocols, and lots and lots of chains - it is no wonder that so-called "normies" are booing even the mention of Bitcoin. How do we expect to onboard billions of people onto our wonderful, egalitarian, permissionless financial primitives if using these protocols still requires many seemingly complex steps where a substantial amount of capital could be at risk?
If only we had technology that could interpret massive amounts of data, identify patterns, and provide clear and concise outputs…
The onset of AI in our day-to-day lives is increasingly prevalent. From the chatbots we interact with to solve our problems on a merchant's website to creating digital designs, asking it to finish our homework, and even making full-blown movies with AI, AI will continue to permeate our lives.
One particular use case we are excited about is how AI will dramatically improve our financial lives. Pair that with the self-sovereignty DeFi brings to the table, and you've got the perfect combination of superintelligence powering unstoppable finance. Moreover, it's said that crypto is likely the best money for AIs, as it gives them access to completely digital sovereign means of transacting online.
The DeFi + AI combo has the opportunity to not only onboard the masses by removing the current complexities of DeFi but also unlock new strategies currently not on the market. To overcome the adoption barrier of DeFi, here are a few use cases we are particularly excited about at this intersection, ranging from application-level use cases to enhancing base-layer DeFi infrastructure. In each section, we highlight some cutting-edge teams at the forefront of pushing forward the intersection of DeFi and AI.
Every day, DeFi users face a barrage of new pools to LP, assets to swap, protocols to receive airdrops from, traders to copy, and staking protocols, among other more complex DeFi strategies. Leveraging AI to rapidly identify emerging trends and financial opportunities could be a 0 to 1 moment whereby even your grandmother can do “one-click DeFi” and be on par with even the most degens of degens. A few teams are already tackling this problem head-on:
Fyde is an onchain automated portfolio and liquidity tool that helps users consistently lock in gains, generate yield, and maintain liquidity. Their liquid vault is accessible directly through more than 40 tokens and uses AI, simulation modeling, and diversified allocations to reduce risk. Depositors receive $TRSY, a token that represents the vault and is engineered to be tradeable. This gives users a set-it-and-forget-it approach to managing crypto portfolios.
Fyde uses AI to lower risk and optimize liquidity. The protocol uses graph machine learning to look at blockchain transaction networks (e.g., network transactions, wallet flows, and more) to gauge the risk of tokens in real time and to avoid hacks and rug pulls. A visual example of this network analysis can be seen below:
Fyde also creates simulation environments that test and refine liquidity strategies for the wrapper token $TRSY. This allows Fyde to dynamically adjust liquidity provisioning in real time to give $TRSY holders the most bang for their buck. These tools are automated and run in the background of their Liquid Vaults to provide a layer of protection for users’ assets that users might not be able to access by themselves.
One Click Crypto leverages AI to streamline the user onboarding process and deliver personalized insights, making the transition into decentralized finance (DeFi) more accessible and customized. The platform begins by analyzing a user's on-chain transaction history through a connected wallet or scanned address, followed by a brief quiz to refine the user's profile.
Beyond onboarding, One Click Crypto is expanding its AI capabilities to include automated portfolio rebalancing, predictive yield forecasting, fraud detection, personalized risk assessments, and sentiment analysis for investment insights. Future enhancements aim to improve security with AI-driven smart contract audits, optimize the user interface through behavioral analytics, provide AI-curated educational content, offer AI-powered chatbot support, and conduct ongoing market trend analysis. These features are designed to enhance the user experience, making DeFi investing easier, highly tailored, and secure.
Fungi addresses DeFi’s complexity by positioning itself at the intersection of AI and Account Abstraction. Fungi is building customized DeFi Agents that process real-time blockchain data, perceive their environment—your smart wallet—and autonomously execute actions based on your precise instructions. It’s like ChatGPT but for DeFi.
Users can chat with Fungi to deepen their understanding of crypto, receive personalized guidance, perform on-chain transactions, create customized DeFi strategies (Hyphas), and even monetize these Hyphas by sharing them with the community. Fungi works as a network of agents who interact with each other and learn from past experiences—a financial superintelligence accessible to everyone.
Here is how Fungi works:
Wayfinder is building out AI agents to navigate and transact across DeFi. By leveraging their “ecosystem graph,” Wayfinder’s agents can navigate and execute complex DeFi strategies, optimizing transactions for speed, cost, and risk. AI agents in the Wayfinder ecosystem continuously learn from each other’s strategies, ultimately making onboarding and executing complex DeFi strategies a breeze.
Like Fungi and Wayfinder, DAIN is building a chatbot-like interface that allows users to chat directly with the interface to query blockchain data, grok meaningful market trends, and execute trades on their behalf.
Another exciting use that brings together AI and crypto is Numerai, which, for several years, has built out a platform to crowd-source stock market prediction algorithms, which are matched with ML algorithms to determine the optimal strategies. More than 5,500 data scientists stake their NMR tokens to compete in a weekly tournament to predict where the stock market will move. Numerai uses cryptography to ensure that other data scientists cannot see each other’s proprietary trades, but it allows them to build machine-learning models that analyze their peers' predictions. According to the coefficient of the stock market performance paired with the predictions crowdsourced from each of Numerai’s data scientists, Numerai will issue rewards for the best-performing predictions. While Numerai’s performance is not public, it has been reported that they have generally outperformed markets through their crowd-sourced predictions, highlighting the power of bringing together decentralized networks, crypto incentives,
Historically, market-making has been gate-kept by centralized and often obscure entities with a mercenary mindset that does not hold the best interest of the ecosystems they are market-making for at hand. ReformDAO is democratizing access to market making and integrating AI to enhance its predictions on token price movements. ReformDAO leverages classification and regression models, refined by causality-focused models, to identify the underlying cause of price movements rather than solely based on correlations. ReformDAO’s use of AI extends to anomaly detection and high-time frame regressions, enhancing its ability to foresee and react to long-term market trends and potential irregularities. Moreover, by predicting 'fair prices' through detailed analysis of order book data, ReformDAO can set competitive bid-ask prices, which is crucial for profitable market making.
Powered by the SmartCredit team, ChainAware gives users a credit score based on their wallet activity. ChainAware then issues an attestation concerning the creditworthiness of the user’s wallet, which users can then use to prove to third parties that they have healthy wallet activity. While its integrations across wider DeFi are still relatively nascent, using your onchain activity as a potential source of trust for lending could become a huge unlock for advancing DeFi’s real-world adoption.
Governance can be an overly cumbersome and often data-filled landscape to navigate. Getting governance right is crucial in DeFi, where substantial capital is at stake. With MakerDAO’s upcoming implementation of the “Endgame,” they want to leverage AI to make governance more transparent and accessible. MakerDAO’s implementation of AI aims to create a governance tool that will allow anyone to participate in governance by building out “The Atlas” - Maker DAO’s governance rulebook that will level the playing field between deeply embedded insiders and more peripheral community members. With increased complexity entering MakerDAO’s governance system through the Endgame, this AI tool should welcome a more diverse set of governance participants, who may provide new perspectives on how the protocol should be governed and how to optimize for MakerDAO’s long-term sustainability.
DeFi has suffered billions of dollars in losses due to smart contract exploits. Oftentimes, even the most talented auditors may miss critical vulnerabilities that may create more robust and safer security audits for many of the leading and emerging DeFi protocols. AI is currently being experimented as a tool to aid auditors in reviewing code and identifying key exploits that could lead to an entire protocol’s assets being compromised. Last year, OpenZeppelin used ChatGPT to face Ethernaut’s security challenge, and the AI found 20 of the 28 critical vulnerabilities. Today, OpenZeppelin is building out teams specializing in exploring how they can integrate AI to enhance their auditing capabilities; these teams recently announced the launch of Defender, which installs a Code Inspector GitHub Application, and using AI will automatically generate a report of any potential issues or vulnerabilities within the code.
As AI matures, we will inevitably see more small teams develop projects that reach unicorn or deca-corn status. In the world of DeFi, having smart contract engineers who can build safe and innovative protocols is a massive barrier to mass adoption. Spectral Labs is building out AI Agents that, through natural language interpretation, can develop and deploy Solidity code, drastically reducing the barrier to entry for creating new DeFi protocols. Further, Spectral Nova is a decentralized network that provides machine learning inferences directly to smart contracts. It enables DeFi protocols to utilize advanced predictive and analytical capabilities, improving decision-making processes and efficiency. For instance, DeFi protocols could use these capabilities for better risk assessment, pricing models, or algorithmic trading strategies.
Due to its complexity and challenging user experience, DeFi is unlikely to reach mass adoption in its current form. However, AI could be the solution to tackle an average user's overwhelming decisions to maximize their opportunities in DeFi and the lack of innovative use cases emerging in the ecosystem. From facilitating the execution of complex transactions to enhance yields on DeFi to deploying production-ready DeFi code, we are bullish on AI’s capacity to unlock a new wave of DeFi adoption.
Many of the teams pushing forth for the integration of AI into DeFi protocols are new entrants into the market, seeking to lay down their mark on the ecosystem. Hopefully, this will incentivize some of the incumbents in the space to explore further how they could bring a new wave of AI-powered advancements to their protocols, drive more user value, and onboard more capital into the DeFi ecosystem. We’re big believers that permissionless financial primitives have the opportunity to disrupt extractive legacy economic systems and look to continue to support teams who are eager to disrupt the status quo.
Collect this post as an NFT.
