Decentralized finance has become one of the fastest-growing sectors within the cryptocurrency ecosystem DeFi has exploded. Despite impressive figures, what’s next for this disruptive financial technology? Creating DeFi intelligence is next, through artificial intelligence (AI) and machine learning.
Several companies are spearheading the integration of AI and machine learning with blockchain, focusing on automation and working towards a vision that makes intelligent capabilities a core feature. They have developed a network of autonomous economic agents that aim to provide the ecosystem with efficient, reliable and future-proof infrastructure and tools to build a smart decentralized digital economy.
Machine learning has the potential to revolutionize DeFi protocols, adding an additional layer that will bring new levels of efficiency to the market and enable intelligent and decentralized asset management vehicles.
DeFi / Financial freedom
DeFi has proven to promote global financial freedom, allowing participants to exert full control over their funds at any point in time and interact without middlemen.
DeFi works to replace out-dated systems the need for an accessible and transparent financial system has become more apparent as, highlighting the failures of traditional centralized entities and providing a viable option for global financial freedom.
The evolution of DeFi including automation is likely to enable robust news services that will assist in making financial transactions and services simpler and more widely accessible.
These changes will enable a new service, including:
- AI-managed derivative products that will significantly enhance the investment process(risk/return)
- enhance liquidity to peer-to-peer financial markets
- Improved risk mitigation using AI
Interoperability allows funds to freely flow across different blockchain platforms such as Bitcoin, Ethereum, Binance Smart Chain and other, generating liquidity and creating a more user-friendly environment for the mass adoption of decentralized finance.
By utilizing artificial intelligence, interoperability will become a core capability in the next generation of DeFi protocols moving liquidity 24/7. The liquidity relocation/rotation will be further automated once more complex intelligence is applied in real time based on the analysis of data points. This will be beneficial for the price discovery and could dampen volatility and streamline risk.
By incorporating AI, intelligent AMMs will learn from factors such as historical market performance based on the behaviours in a given set of liquidity pools. This would create an asset distribution function that correctly reflects the market.
Intelligent DeFi lending
Once AI intelligence capabilities are incorporated, DeFi lending will evolve to factor in collateralization levels, such as liquidation history and transactional patterns, to develop an intelligent and quantitative profile of borrowers and lenders.
As institutional capital flows into DeFi and the risk of theft grows, DeFi insurance will become necessary. The insurance sector is slowly becoming an established component of the DeFi ecosystem but is very cautious and still lacks its intelligence.
Insurance of specific smart contracts can be based on intelligent models that use quantitative DeFi factors such as the number of liquidations in lending protocols that the smart contract has been exposed to, or the types of pools specific addresses are supplying liquidity.
Another important service AI can deliver is the ability to evaluate the risk of a particular smart contract that may be suffering from an exploit or a hack/bug.
A continuous development of vast platforms and protocols for trade, deposit, borrowing, and lending cryptocurrency facilitates a move towards AI integration, which seems inevitable. A combination of both DeFi and AI will eventually lead to a whole new generation of decentralized financial services.