Summary
AI can potentially increase DeFi transparency and decentralization. Predictive analytics, smart contract automation, credit scoring and other applications look promising. But we should be realistic about AI goals and avoid unnecessarily reducing accountability and human decision-making, and avoid setting too high goals for easy profits.
AI is the most fascinating in the world in the public eye One of the technologies. AI seems to have the potential to transform every aspect of our lives, including the blockchain and cryptocurrency industries.
But we must remain rational. Although AI brings hope, it also makes people fall into certain delusions. Only by identifying potential sites for innovation can we successfully implement AI technology.
Let’s start by defining these two terms. DeFi is a decentralized financial application ecosystem built on the blockchain network. DeFi products include pledged borrowing, liquidity products, and centralized trading platforms (DEX).
According to Oxford Dictionary, AI is "the ability of a computer or other machine to exhibit or simulate intelligent behavior." Common AI applications in finance or trading include fraud detection software, trading bots, and even chatbots.
On the surface, both AI and DeFi can disrupt the traditional financial system through efficiency, transparency, and accessibility. DeFi changes the products available to all of us, and AI impacts how we interact with products.
AI seems to have the opportunity to improve decision-making capabilities and risk management in DeFi. But what will it look like in the end? We are looking forward to new AI financial products and services, as well as trading algorithms and market-making mechanisms.
Predictive analysis uses AI technology to analyze historical data and apply statistical models to try to predict future market results. Over time, AI can also improve predictive capabilities through machine learning. In layman’s terms, this is similar to AI performing technical analysis and fundamental analysis on behalf of traders.
AI tools have long been applied to the cryptocurrency and financial fields. At the same time, we also see the prospect of automated trading and portfolio management in the DeFi field. .
AI has the potential to increase the effectiveness of smart contracts through automation. For example, lending protocols can leverage AI tools to continuously monitor lenders’ collateral levels and predict possible defaults before they occur. The test results are then fed back to the lending agreement. In this case, AI will perform functions that are difficult for smart contracts to do.
The anonymity of DeFi services makes it more difficult to identify fraud, and AI can identify fraud by observing trends in large data sets. For example, use data analysis technology to identify false exchange trading volumes or suspicious liquid asset realization behavior.
As part of the core spirit of DeFi, decentralized products require almost no human investment from lenders. However, this means that aside from capital requirements, DeFi products like cryptocurrency lending often have very low or even no barriers to entry.
Collateral lenders can offer better prices to users with proven repayment records based on credit scores. However introducing a potentially biased human element into this scoring system would remove the decentralized aspect.
One of the ways to deal with this situation is to use AI credit scoring to analyze the borrower’s wallet and history and evaluate their Repayment potential.
Traders and investors in the DeFi market consider robo-advisors to be very promising. Anthropomorphic interactive user experience smooths the learning curve for technical analysis, fundamental analysis, and advanced predictive analysis. With transactions on most blockchains fully transparent, there is a wealth of data available for AI to analyze and use.
Looking at the big picture, we can see potential AI pitfalls. AI will undoubtedly negate the need for human labor for certain tasks, which may eliminate certain jobs and even eliminate accountability to some extent. The anonymity of DeFi increases the difficulty of supervision, and the inclusion of non-human operations further complicates the problem.
We should also consider possible problems with techniques for training AI based on limited data. Compared with traditional markets, cryptocurrencies, especially DeFi, are still in their infancy. Without long-term data support, it is difficult to establish a balanced view of the entire market.
Introducing new tools also has security risks. Entry points to AI tools and their access to data and wallets provide additional hacking points for scammers. In addition to open source AI tools, other AI tools are often developed by private companies or individuals. How secure these tools are depends entirely on the robustness of the security features configured in the tools by their developers.
We also need to consider the decentralization risks that may arise from the introduction of privately developed AI tools. There is a lack of transparency into exactly how these tools work. You may not be fully aware of updates to your AI tools or even exactly what your AI tools have access to. If developers stop supporting AI technology, your AI tool may eventually become useless.
Although the combination of AI and DeFi brings new opportunities, we must be realistic. To make the most of AI tools in DeFi, developers should focus on where the AI tools can actually make a difference. Most of the following delusions have already appeared in the traditional financial world, so they are also easy to identify in the DeFi field.
When using AI tools, human input is always necessary. Users must be trained to use AI tools correctly, which is an extremely complex process, rather than simply putting AI tools into the market without any guidance.
While AI can improve the transparency and decentralization of DeFi, it is not a panacea for all its problems. Applying AI to every potential problem is not an effective solution and will lead to more problems.
You only need to look at the systems of existing centralized exchanges (CEX) to know that this is not the case. AI systems have advantages, but we cannot guarantee that they will generate more profits.
DeFi has been detrusted to a large extent, but in some cases "trust" is indeed required. AI should not attempt to replace extensive research into the trustworthiness of the project team or founders.
In the future, AI will surely achieve revolutionary breakthroughs. However, we are not sure whether this breakthrough applies to DeFi. AI clearly has the potential to make financial services more convenient and efficient, and this should be the goal.
We can achieve this by using AI to improve the efficiency and effectiveness of DeFi systems in predicting, managing risks and automating daily tasks. One goal. We can also use AI to improve user experience and user safety.
But we shouldn't expect quick profits. If you're looking to make huge profits from AI, you're bound to be disappointed. It is much more practical to focus on the potential of AI not to create greater profits, but to increase financial accessibility and freedom for DeFi users.
There is no doubt that AI has great potential in the DeFi field. AI can transform the way we interact with DeFi from automating financial processes to more accurately predicting market trends.
Although DeFi AI has broad prospects, some unrealistic ideas must be dispelled. As the DeFi field continues to develop, the cryptocurrency community needs to remain vigilant when implementing AI, explore potential, and avoid unexpected situations.
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