The future of finance is DeFi intelligence

In the past year, decentralized finance has become one of the fastest growing areas in the cryptocurrency ecosystem.At the time of writing, the total value locked in DeFi is exploded More than 100 billion U.S. dollars. Although the numbers are impressive, decentralized finance is still in the beginning stages of development, which begs the question: What is the next step for this disruptive financial technology?

The next frontier field may create DeFi intelligence through the combination of artificial intelligence (AI) and machine learning and decentralized finance to discover new possibilities.

Field DeFi Smart

Today, several companies are taking the lead in combining artificial intelligence and machine learning with blockchain, focusing on automation and working to realize the vision of making intelligent functions a core function. Interoperability is essential to create a fully functional smart DeFi solution. They have developed an autonomous economic agency network aimed at providing efficient, reliable and future-oriented infrastructure and tools for the Web 3.0 ecosystem to build a smart decentralized digital economy.

related: How NFT, DeFi and Web 3.0 are intertwined

This spring, Shopify Capital Announce It plans to use machine learning and artificial intelligence to fund eligible merchants based on their previous sales history and store performance. Similarly, the decentralized AI market SingularityNET Developed a new DeFi project Called SingularityDAO, it plans to manage a dynamic token set, perform predictive market making, and execute hedging strategies based on predictive models.

DeFi intelligence has the potential to completely change the DeFi protocol and add an additional data layer, which will bring a new level of efficiency to the market and enable intelligent and decentralized asset management tools.

DeFi intelligence and financial freedom

As DeFi strives to replace outdated systems, highlight the failure of traditional centralized entities and provide viable options for global financial freedom, the need for an accessible and transparent financial system has become increasingly obvious. Contrary to its centralized counterparts, DeFi has been proven to promote global financial freedom, allowing participants to have complete control over their funds at any point in time and interact without intermediaries.

related: DeFi will bring a global revolution to the traditional financial sector

The evolution of DeFi to include automation may enable powerful news services, which will help make financial transactions and services simpler and more widely accessible. These changes will enable a new set of services, including:

• Derivative products managed by artificial intelligence will significantly enhance the investment process and the liquidity of the peer-to-peer financial market. Improved risk mitigation will also be an added benefit.

• The artificial intelligence risk management of the decentralized exchange will evaluate the trading situation and hedge the market accordingly.

• User ratings. The banking industry is currently undergoing transformation through artificial intelligence technology, which can perform user risk analysis faster and more effectively. In the case of not violating user privacy too much, the same technology can be applied to DApps to achieve a more complex customer layer and more advanced incentive mechanisms. At the very least, users can get higher revenue through their liquidity or other exclusive product/service features.

DeFi intelligence and interoperability

Interoperability allows funds to flow freely between different blockchain platforms such as Bitcoin, Ethereum, and Binance Smart Chain, thereby generating liquidity and creating a more user-friendly environment for the large-scale adoption of decentralized finance. Using artificial intelligence, interoperability will become the core capability of the next-generation DeFi protocol.

Once more sophisticated intelligence is applied in real time based on the analysis of thousands of data points, liquidity redistribution can be further automated. This will facilitate price discovery, curb volatility and simplify risk management across blockchains.

related: Blockchain interoperability: the big picture

Smart AMM

If you think of a Automatic market makerOr AMM, as a robot that is always willing to offer you a quote between two assets, it is clear that applications such as Uniswap or Balancer are on the right path. But how can we go further? By combining artificial intelligence, smart AMM can learn from factors such as historical market performance based on the behavior in a given set of liquidity pools. This will create an asset allocation function that correctly reflects the current market conditions.

related: Automated market maker is dead

Smart DeFi lending

Once the intelligence capabilities are integrated, DeFi lending The agreement can evolve to take into account collateral levels and factors (such as clearing history and transaction patterns) to develop an intelligent and quantitative profile of borrowers and lenders.

Smart insurance

The traditional insurance market today is Pay attention to More than 6 trillion U.S. dollars. As institutional funds flow into DeFi and the risk of theft increases, DeFi insurance will become a necessary condition for investors. Although insurance is slowly becoming an established part of the DeFi ecosystem, it still rarely uses intelligence.

The insurance of a specific smart contract can be based on a smart model that uses quantitative DeFi factors, such as the amount of liquidation in the lending agreement touched by the smart contract, or the type of pool to which a specific address provides liquidity. Another important service that AI can provide is the ability to assess the risk of specific smart contracts that may be attacked or hacked/error.

in conclusion

As DeFi continues to spawn a huge network of platforms and protocols that allow users to exchange, trade, deposit, borrow, and lend cryptocurrencies, initiatives to integrate artificial intelligence may continue to receive attention. Combining these two movements seems inevitable and will open up a new level of DeFi innovation to power a new generation of decentralized and intelligent financial services.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.