Since its inception, decentralized finance (DeFi) has committed to building an open global financial ecosystem with the core concept of empowering individuals with asset autonomy and eliminating traditional intermediaries. However, despite the rapid development of DeFi, its complex user interface, numerous protocols, and high-risk operational decisions still deter many users from fully engaging in its capabilities. The next stage of DeFi, known as DeFAI, represents the deep integration of artificial intelligence (AI) and decentralized finance. This integration aims to reshape the field by introducing advanced AI technology to simplify user experiences and optimize financial decision-making processes. DeFAI aims to lower the entry threshold and achieve a more autonomous and efficient financial interaction method. This article explores the three core application scenarios of AI in DeFi and how it drives the evolution of decentralized finance.
1. Access decentralized applications (dApps)
DeFi users, whether new or experienced, often face the complexity of executing transactions across multiple protocols. The existing process usually includes accessing decentralized applications, commonly known as dApps. Users must first navigate to the appropriate platform, which can range from simple interfaces to more sophisticated applications, each with its unique set of rules and functions. This initial step can be daunting, particularly for newcomers.
Moreover, users are often required to switch between various dApps to complete different aspects of their transactions, adding to the complexity. This step is often time-consuming because users must find and understand how each dApp works before they can even begin to execute transactions. As the number of DeFi applications continues to grow, the challenge of efficiently navigating through them increases, making it difficult for users to fully exploit the capabilities and benefits of decentralized finance. By leveraging AI, DeFi platforms can create more intuitive dApps that are easier to navigate, significantly reducing the time and effort required to execute transactions.
2. Link a wallet (such as Metamask, Ledger, or Phantom)
After navigating to the appropriate dApp, the next crucial step is to link a wallet, with options such as Metamask, Ledger, or Phantom being common among users. Connecting a wallet is essential for executing transactions, as it securely holds the user’s digital assets and confirms transaction details. This step often involves a series of manual actions, such as scanning a QR code or copying and pasting wallet addresses, which can be cumbersome and prone to errors.
AI-driven solutions aim to simplify this process by enabling seamless integration between dApps and wallets. For example, AI can automatically detect and suggest the most suitable wallet based on the user’s transaction history and preferences, reducing the need for manual input. Additionally, AI can enhance security by identifying and warning users of potential risks associated with connecting to unfamiliar or untrusted wallets. By streamlining the wallet connection process, AI can help users focus on their financial activities without the hassle of navigating complex interfaces and multiple verification steps.
3. Input transaction details
Once the wallet is connected, users must input transaction details, which often includes specifying the amount to be transferred, selecting appropriate tokens, and ensuring all information is accurate. This step can be particularly challenging for those unfamiliar with the various parameters and options available within DeFi platforms. Incorrectly entered details can lead to failed transactions or, worse, loss of funds.
AI can significantly enhance this stage by providing a more user-friendly interface that allows natural language commands. For instance, users could simply state, “Exchange 3 ETH for USDC,” and the AI would handle the rest. This capability reduces the likelihood of errors and makes the transaction process more accessible. By parsing user requests, searching for the best sources of liquidity, and generating transaction data automatically, AI simplifies the entire process. It ensures users are prompted to select a wallet for transaction signing accurately, thus enhancing the overall user experience.
4. Approve the transaction multiple times and verify the contract address
The final step in executing a DeFi transaction involves approving the transaction multiple times and verifying the contract address. This step is crucial for ensuring the security and validity of the transaction, but it can also be one of the most tedious and error-prone stages. Users must confirm transaction details, verify contract addresses to avoid scams, and approve the transaction within their wallet interface.
AI-driven DeFi interfaces can automate much of this process, thereby reducing the number of manual approvals required. By cross-referencing contract addresses against known safe databases and alerting users to any discrepancies, AI enhances security and minimizes the chances of interacting with malicious contracts. Additionally, AI can optimize the number of verification steps by consolidating approvals, making the process more efficient without compromising safety. This streamlined operation allows users to complete transactions faster and with greater confidence, making DeFi more accessible and less intimidating.
5. Choose a secure cross-chain bridging protocol
Cross-chain bridging protocols enable the transfer of assets between different blockchain networks. Choosing a secure and efficient protocol is essential to ensure the safety and success of such transactions. Users must navigate a host of available protocols, each with its own set of risks, fees, and complexities. Identifying the most appropriate option often requires in-depth knowledge and considerable time investment, which can be a barrier to broader DeFi adoption.
AI can assist by evaluating and recommending secure cross-chain bridging protocols based on user requirements and current market conditions. Leveraging AI’s capability to quickly analyze vast amounts of data, users receive tailored recommendations that balance security, speed, and cost-effectiveness. This minimizes the risks associated with cross-chain transactions and ensures users can transfer assets seamlessly and securely across various blockchain networks.
6. Plan the optimal exchange route
After choosing a secure cross-chain bridging protocol, the next important task is to plan the optimal exchange route. This involves determining the most efficient path for executing transactions, which can include multiple intermediary steps and conversions across different platforms. Users must consider factors such as transaction fees, liquidity levels, and potential slippage to avoid unnecessary costs and delays.
AI-powered platforms can revolutionize this process by automatically calculating and suggesting the best exchange routes. By analyzing real-time market data and historical trends, AI can identify the paths with the lowest fees, highest liquidity, and minimal slippage. This ensures that users can execute transactions swiftly and cost-effectively, without needing to manually compare various options. The ability to rely on AI for optimal route planning enhances the user experience and makes DeFi transactions more straightforward and profitable.
7. Create liquidity pools in decentralized exchanges (DEX) such as Uniswap
One of the key components of DeFi is providing liquidity to decentralized exchanges (DEX) like Uniswap, which involves creating liquidity pools. This process allows users to earn fees from trading activity within the pool, but setting it up requires a series of steps that can be complex for the average user. Users must select appropriate token pairs, determine contribution amounts, and understand pool dynamics to effectively manage their investments.
AI can greatly streamline this process by guiding users through each step and offering data-driven recommendations. For instance, AI can suggest the best token pairs based on current market conditions and user’s portfolio, as well as calculate optimal contribution amounts to maximize returns. By automating the creation and management of liquidity pools, AI empowers users to participate in DEX activities more efficiently and profitably. This lowers the entry barrier for newcomers and enhances the overall liquidity and stability of decentralized markets.
8. Return the generated LP tokens to the user’s wallet
Once the user has created liquidity pools in decentralized exchanges (DEX) such as Uniswap, the generated LP tokens need to be returned to the user’s wallet. This process ensures that users can track and manage their investments effectively. However, this process often requires several manual actions, such as scanning QR codes or copying and pasting wallet addresses, which can be tedious and error-prone.
AI-driven solutions are designed to simplify this process by enabling seamless integration between dApps and wallets. For instance, AI can automatically detect and suggest the most suitable wallet based on your transaction history and preferences, minimizing the need for manual input. Additionally, AI can boost security by identifying and alerting users to potential risks when connecting to unfamiliar or untrusted wallets. By streamlining the wallet connection process, AI helps users concentrate on their financial activities without the headache of complicated interfaces and repetitive verification steps. Overall, AI enhances user experience by making the connection process more efficient and secure.
