Nowadays, Artificial Intelligence (AI) has become a powerful assistant in nearly every sector. AI helps humans in many activities, from sparking creative ideas to simplifying complex tasks. Moreover, tools like ChatGPT and other AI-powered software are highly used to make tasks faster and more efficient. But this technology isn’t stopping there—it’s now stepping into the financial sector, particularly in the decentralized finance space.

We already know that Decentralized Finance (DeFi) empowers individuals to manage financial transactions without intermediaries. Here, Artificial Intelligence steps in to drive DeFi activities better. It analyzes the market, predicts future trends, and makes more intelligent decisions on its own. This integration is what DeFAI is all about. 

In this blog, I’ll explain what DeFAI is, how it works, its benefits, and more.

Stay with me throughout the blog to explore how the combination of Artificial Intelligence and Decentralized Finance is changing the financial sector.

Ready? Let’s get started.

What is DeFAI?

The combination of Decentralized Finance and Artificial Intelligence is known as DeFAI. These DeFAI protocols leverage AI for decision-making, data collection, and automation of financial tasks. They help to simplify users’ interactions with DeFi solutions.

With DeFAI, users can easily engage in trading, yield farming, lending, borrowing, and other DeFi activities. By analyzing market data and trader behavior, this AI offers valuable insights that help users make smarter decisions, making DeFi trading and other services more profitable.

This DeFAI follows the traders’ instructions. Let’s say the trader placed a rule for the protocol to buy the Bitcoin when it goes to more than $87,700.00. Additionally, he instructed to sell the Bitcoin when it moves below $87,500.00. Now, the system automatically processes trades once the specific conditions are met. So the trader doesn’t need to watch the trading chart at 2 AM. 

Think of DeFAI as a self-driving car that navigates through traffic and adjusts speed without your constant oversight. The DeFAI can manage your DeFi investments, buying and selling assets at the perfect time based on predefined rules and market trends. 

Right. Let’s see how this innovation works!

How does DeFAI work?

This AI tool works 24/7. It continuously analyzes market data and searches for the best strategies to make users’ trades profitable. Let’s take a look at how DeFAI works with a simple example.

Let’s say you have XRP in your wallet. You want to make profits by trading these cryptos.

This is how the DeFAI solution works.

The AI gathers all data based on which crypto you choose to make profits. Now, the DeFAI solution analyzes the data on off-chain and on-chain. Then, it gains knowledge and makes a clear strategy about how you can make profits with XRP crypto. 

Based on its analysis, the protocol recommends strategies to users to maximize profits with XRP. It provides data like:

  • You can earn a 10% profit on Exchange YYX.
  • You can earn a 15% profit on Exchange ABC.

Now, the trader can make trades by following the AI’s analysis. If the person doesn’t have time, they also have the option to automate the trade. 

With the smart contracts, the protocol automatically conducts a trade on the exchange where the XRP gains more profits. 

One of the best features is that users can access instructions in simple, everyday language. This makes it easy for users to facilitate financial transactions on DeFi without technical expertise.

Now, most people are confused between DeFi and DeFAI. Let me clarify the difference for you now. 

What’s the Difference Between DeFi and DeFAI?

Both DeFi and DeFAI work on decentralized ecosystems. However, many people are still unclear about the distinction. 

DeFAI means the integration of artificial intelligence in the existing DeFi solutions. With this technology, a regular DeFi solution helps users to make better decisions and makes trading simple and easy.   

I’ll break down the differences between DeFi and DeFAI and how an AI-integrated platform works differently from a normal one. 

Automation

Let’s say you’re using a standard DeFi solution, You need to track all your financial activities without failing, right? If you make a wrong move, you will end up losing money.

However, in the DeFAI platform, the protocol leverages Artificial Intelligence (AI) to handle all your activities. This helps you to make organized transactions while saving more time and effort.

User Friendliness    

In DeFi protocols, individuals need a deep understanding of crypto markets to make trades and engage in activities like yield farming or staking profitably.

In contrast, DeFAI solutions allow individuals to make profitable trades without any more in-depth crypto knowledge. The AI takes care of everything. 

It’ll give suggestions and automate the trades if the user says so. But you can’t simply make trades with DeFAI solutions. You must understand the fundamental functions and information of crypto markets.

Precision

In standard DeFi protocols, a human conducts a trade based on their mindset. It’s good, but sometimes, they will make some wrong decisions in the desire to make more profits. These human emotions can sometimes impact their gains.

In contrast, the AI-Powered DeFAI software provides users with insights purely based on data. They won’t make any decisions based on emotions. So, this technology helps traders minimize their risk of losing their profits.

Personalization

The standard DeFi software solution offers generic financial services to users. But this AI-powered solution presents a wide range of benefits to its users. 

For example, 

  • Person A wishes to make more profits from various trades.
  • Person B wishes to make more profits from a single trade.

These DeFAI protocols give customized plans and insights based on their needs.

How does DeFAI Benefit Traders?

DeFAI protocols stand with the traders like a personal assistant. They give up-to-date data and insights to the trader 24/7 to make profitable trades.

Let me outline some of the benefits that traders can leverage with DeFAI platforms.

  • First, this DeFAI helps traders to eliminate human errors that happen because of their emotions. The trader can make wrong decisions if a market crash occurs suddenly. However, the DeFAI provides detailed instructions based purely on data and analysis. They give traders an idea of whether they need to sell their assets or not.
  • Next, it’s speed and accuracy. It takes more time for the trader to analyse the market and find out what decision makes their trades more profitable. However, with artificial intelligence technology, traders can have perfect data on their tables to make lucrative trade decisions.
  • DeFi can be complex for some people. They struggle to calculate APY in yield farming, get confused about finding profitable trading strategies, and more. Here, the DeFAI solves all these problems for traders. Simply, this innovative solution helps users trade more efficiently and easily in decentralized finance.
  • This AI integration provides a stronger approach to managing risks in DeFi solutions. They continuously monitor the protocol’s security strength. It keeps an eye on vulnerabilities and takes desired action before something gets worse.      

The drawbacks of DeFAI

  • DeFAI has a lot of potential but isn’t perfect. They also have some issues. They are in the starting stages, and they can make mistakes, too. Moreover, regulators are already planning how to define rules for DeFi. If this AI technology makes a wrong decision, a trader can face a massive loss. Who is responsible for this?
  • These Artificial Technologies are built with the most advanced protocols. However, our blockchain systems are not fully ready to adapt them. Our blockchain systems need some advanced updates to interact with AI without any hassles. This situation can cause communication between DeFi solutions and blockchain to be more complex, leading to issues sometimes. 
  • You know that the DeFAI is entirely based on data. If the solution sees all your protocol’s data, then the trader has no privacy! If any problem occurs, there is a chance that hackers can steal all our data from this artificial intelligence.

In summary, you can use DeFAI with full awareness, but you should not rely on it entirely. You need to understand all the drawbacks before using it.    

Right. Let’s take a glimpse at some live DeFAI projects now.

DeFAI Protocols Currently Live in the Market

 Here are some successful DeFAI projects that are making an impact in the market.  

  • GRIFFAIN – It’s one of the well-performing projects with more than $44 million market capitalization. This solution helps users access finance with the Solana blockchain. GRIFFAIN offers automated staking, liquidity provision, and portfolio management by leveraging AI technologies.
  • AIXBT – It is one of the best DeFAI protocols, with a market capitalization of more than $116 million. AIXBT utilizes AI for real-time analysis and offers actionable insights for traders from market data. 
  • DeFAI Nexus – It’s a conversational AI chatbot that executes DeFi operations across multiple chains using simple commands. This protocol’s market capitalization is currently more than $130 million.

Wow! You have explored a lot. It’s time to conclude.

Final Notes 

DeFAI represents a new era in financial interaction. It merges the transparency and security of DeFi with the capabilities of AI. Moreover, it gives users greater control, deeper insights, and automated solutions for their financial journeys.

Now, DeFAI is not completely perfect, but it’ll definitely make wonderful things in the future.

If you’re an entrepreneur, then starting a business with these AI-powered solutions can be truly beneficial in the future. If you want to establish a venture in the DeFi space, you can contact Trioagle Technologies. As a top-tier DeFi Development Company, we craft a diverse range of DeFi solutions that are completely customized to our clients’ needs.

Contact us and start building your DeFi solution today!