DeFi
The trillion-dollar power couple reshaping finance
Guest post HodlX Submit your message
The DeFi (decentralized finance) market has made an impressive comeback over the past 12 months – with TVL (total value locked) across all protocols. double at $93 billion.
Meanwhile, excitement about the capabilities of generative AI continues to grow.
A Bloomberg report suggests that this industry could be worth $1.3 trillion by 2032 and “fundamentally change the way the technology sector works.”
DeFi and AI (artificial intelligence) are expected to gain strength in their respective fields over the coming decade.
But there has been little discussion about the seismic impact these technologies can have if applied together – driving exponential growth and revolutionizing finance on a global scale.
In the seven years since DeFi protocols were created, a thriving ecosystem of financial applications and services has been built on top of blockchain networks, providing a modern, real-time parallel to the outdated and slow infrastructure on which are supported by traditional institutions.
Smart contracts now offer self-enforcing agreements that eliminate the need for intermediaries and open up access to lending, borrowing, trading and saving – all with much more competitive interest rates.
When you strip away the complicated jargon and talk about liquidity pools and yield farming, the opportunities presented by DeFi are simply mind-blowing.
In a world where access to banking services is governed by strict eligibility criteria that billions of people cannot meet, these protocols can ensure financial inclusion for unbanked and underbanked populations around the world.
Now anyone can manage their money through a smartphone.
Funds can be sent and received instantly and cheaply without relying on gatekeepers charging punitive fees, while those who cannot receive a credit score can now build a reputation on the blockchain.
By bringing DeFi and AI together, a multi-billion dollar power couple begins to form with truly transformative use cases.
But what does this look like in practice – and what are the opportunities and challenges on the horizon as we redefine the future?
DeFi done right
AI’s ability to digest vast data sets in the blink of an eye, make intelligent predictions, and connect the dots between trends will energize the world of DeFi.
We’re barely scratching the surface when it comes to potential applications.
AI-powered algorithms can analyze walk trends, bringing together media coverage, social media posts, historical data and brand new figures on how long it takes a human to have a cup of coffee.
Applied correctly, it allows marketers to stay ahead of the curve, businesses to detect changes in behavior, and helps forward-thinking entrepreneurs spot exciting opportunities for new goods and services.
Additionally, all of this in-depth information can be provided in a fully automated manner, saving time and increasing productivity.
Together, AI and DeFi will also reinvent the way we interact with money, personalizing financial services like never before.
Imagine an algorithm that makes tailored recommendations on products you’ll love based on your past purchases or discovers discounts on car rentals and accommodation when you book flights.
Although barriers to entry related to investing and financial planning have begun to lower in recent years, many consumers still lack the means and know-how to prepare for a better future.
In the coming years, all this will change, with AI-enriched platforms enabling investors to save regularly, invest wisely and budget meticulously.
And instead of taking a “one-size-fits-all” approach, each user could benefit from specific plans based on their income and expenses – with investment portfolios and trading strategies tailored to their risk tolerance and goals. long term of the individual.
Expanding access to fintech can happen safely as AI and DeFi converge.
Both technologies will also prove invaluable in the fight against identity fraud, which cost To Americans, a staggering $23 billion last year.
Advanced analytics, powered by machine learning, have the power to instantly detect complex fraud patterns across multiple locations – while the cryptographic security offered by blockchain platforms helps eliminate some of the attack vectors commonly exploited by actors malicious.
This, coupled with faster and more accurate KYC (know your customer) checks, can prevent funds from being stolen in the first place and make DeFi platforms an even safer environment for storing assets.
A win-win situation for consumers and lenders is also beginning to emerge, thanks to a revolution in credit underwriting.
Applications can be reviewed using alternative data points – allowing independent workers access to capital rather than suffering arbitrary denials – with users building a reputation on immutable blockchains.
This leads to more informed lending decisions for DeFi platforms and the development of robust risk management strategies.
By leveraging machine learning, AI can automate the creation and execution of smart contracts, streamlining operations and eliminating the risk of human error.
We are already starting to see innovative new projects leveraging these capabilities, like Zircuit, a layer two blockchain with AI-driven security, and Ritual, the network for open AI infrastructure.
Innovate responsibly
There’s so much to be excited about – and lots to work on. But in this context of innovation, particular attention must be paid to the potential pitfalls of close integration between AI and DeFi.
Data quality, privacy and security are three crucial themes that innovators should focus on when creating new products.
Robust guarantees must be put in place to protect protocols against adversary attacks.
The complexities of regulatory compliance pose another hurdle to overcome, with jurisdictions around the world poised to pay greater attention to both technologies in the years to come.
There are also ethical implications to think about. AI tool providers must ensure they mitigate the risk of algorithmic bias leading to unfair outcomes.
Cutting-edge cybersecurity is needed to ensure that personal data processed by emerging platforms is not used for malicious purposes.
And as AI models develop, transparency is necessary to ensure that potential errors can be corrected and that the public has confidence in the systems they interact with.
Let’s not forget that new technologies also represent a steep learning curve for consumers, who may be reluctant to change.
DeFi and AI have the potential to redefine finance as we know it.
By democratizing access, promoting inclusion, and fostering a more transparent and secure ecosystem, this technological marriage could usher in a new era of empowerment for all.
But to truly unlock their potential, we must address future challenges head-on and ensure that these tools are implemented responsibly.
The future of finance rests on our ability to definitively harness the power of AI and DeFi.
Sunil Srivatsa is the founder and CEO of Storm Labsthe creators of Cove Protocol, the first on-chain wallet manager.
Check out the latest titles on HodlX
follow us on Twitter Facebook Telegram
Check Latest industry announcements
Disclaimer: Opinions expressed on The Daily Hodl do not constitute investment advice. Investors should conduct due diligence before making high-risk investments in Bitcoin, cryptocurrency or digital assets. Please note that your transfers and transactions are at your own risk and any losses you may incur are your responsibility. The Daily Hodl does not recommend the purchase or sale of cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Image generated: halfway