DeFi is one of the most exciting innovations in crypto, transforming how people borrow, lend, invest, and interact with financial services.
Yet it is also incredibly complex, with thousands of individual protocols scattered across hundreds of blockchains, and every single one of them is technically challenging to interact with. It’s a cognitive overload that, for many, makes DeFi impossible to access.
DeFi’s inaccessibility stems from its ridiculously complex user interfaces and its endless technical jargon that goes way over the head of your average Joe. It’s also characterized by a complex workflow, with the need to sign approvals before processing transactions.
Then there are the security concerns, which terrify many users from interacting with DeFi. In addition, the capital invested in DeFi is fragmented across numerous networks, introducing substantial navigational challenges and the need to ‘bridge’ assets from one chain to another.
Enter DeFAI
It’s a steep learning curve, but it’s not impossible to overcome. With the emergence of DeFAI, or the intersection of DeFI and AI, new tools are becoming available that will transform how people interact with these protocols.
They hold the promise of simplifying the DeFi landscape and making it more approachable to new users, eliminating the most complex aspects of activities like staking, trading, lending, borrowing, and yield farming so everyone can get involved.
The term “DeFAI” was first coined by the crypto developer Danielle Sestagalli, and it refers to the integration of AI algorithms with DeFi protocols in order to simplify complex processes and improve the user experience. In this way, it acts as a kind of concierge for newcomers, guiding them through the various opportunities it provides.
An example of DeFAI is automated trading, where AI-powered agents can act on behalf of users, analyzing real-time market conditions to try and make profitable trades without any input from the user. They can also aid in risk management by identifying potential risks in DeFi and then suggesting possible strategies to reduce those risks.
They can also improve yield optimization through automated asset allocation, maximizing investor’s returns. Finally, they can also help to protect users from fraud by detecting suspicious or malicious activity. In summary, they can help to create a more robust, user-friendly, and secure DeFi landscape.
Intelligent Trading
The most obvious way DeFAI can help is through the automation of trading. Let’s imagine an AI agent that can collect vast amounts of data, including on-chain asset prices and their movements, liquidity metrics, and even social media sentiment, to inform its decision-making processes. This advanced AI model will then crunch this data in real time to try and predict trends and identify profitable trading opportunities.
Then, once authorized, it will be able to autonomously execute trades on behalf of users, rebalance their portfolios, and switch between different yield strategies based on the market conditions without requiring any user oversight. To do this, it must also be able to handle seamless cross-chain interactions while ensuring that its user’s assets remain secure in a non-custodial wallet.
If this sounds intriguing, you’ll be even more impressed to learn that this isn’t just some faraway vision. Giza has built the underlying infrastructure for the creation of trading bots that can do all of the above, analyzing multiple protocols at once in order to execute complex yield strategies and adapt to changing conditions.
Its smart account infrastructure is a foundation for building a new generation of highly sophisticated autonomous financial agents like ARMA that can operate across the entire DeFi ecosystem, governed by self-enforcing guardrails to protect their user’s funds.
Giza’s DeFAI agents employ a trio of innovations, including purpose-built intelligent algorithms that are trained to understand the nuances of the DeFi market and its current conditions to make smart investment decisions in real time.
They also integrate dynamic position management capabilities that allow them to respond to the evolving markets, rebalancing users’ portfolios to avoid exposure to any new risks that emerge. Moreover, they feature automated safeguards with verifiable execution to ensure full transparency.
By combining these innovations, Giza can overcome the cognitive barrier that arises from having so many different protocols and assets to watch in real time. Its DeFAI agents can continually monitor every single protocol and every single asset across every blockchain, 24/7, and execute trades with incredible precision, enabling them to engage in sophisticated strategies that would be impossible for any human trader.
Automated Compounding
DeFAI also opens the door to more efficient yield farming strategies by enabling investors to rinse and repeat and generate the highest possible returns from compounding.
One of the best aspects of DeFi is compounding, which refers to an investment strategy where users will invest in liquidity pools and earn reward tokens for doing so, before reinvesting those rewards back into the liquidity pool to maximize their returns.
As an example, Ref Finance is a decentralized exchange platform on NEAR Protocol that enables people to deposit funds into liquidity pools and receive LP tokens. Users can take those LP tokens and reinvest them via Ref Farms, which provides a different kind of receipt token.
There’s no need to stop there, as users can take those new receipt tokens and reinvest them into yet another liquidity pool to earn yet more rewards of a different kind. With each new reinvestment, they can earn compound interest, and it’s possible to repeat this multiple times.
Users can of course, do this manually, but DeFAI yield optimizers like Yearn Finance and Vesper are a much more efficient option, enabling them to rinse and repeat the process hundreds of times in a single day to earn the most optimal yields.
Defying DeFi’s Complexity
DeFAI breaks down DeFi’s barriers to entry in many ways. By eliminating the need for users to sit and study complex charts, it can create smart investing strategies tailored to each individual based on their unique behavior and preferences.
Investors can use a chat-based tool to interact with an automated portfolio manager, which will balance their holdings based on their simple commands. DeFAI also supports goal-based trading, executing the most appropriate strategy according to the user’s financial targets.
As DeFAI matures, it will make DeFi more accessible and user-friendly and increase efficiency for users, paving the way for many more people to get involved with the next generation of finance.
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