Author: Tom Mitchelhill, CoinTelegraph; Compilation: Wuzhu, Golden Finance
DeFAI is a combination of decentralized finance DeFi and artificial intelligence AI, which quickly emerged at the end of last year and became one of the best-performing and most hyped industries in the cryptocurrency field. However, the sudden downturn in the US artificial intelligence market has caused the total market value of this emerging industry to drop by 80% from its peak.
While many market participants have almost all written obituaries for DeFAI, Ryan McNutt, founder of Orbit, an AI-powered DeFi assistant platform, says the industry is just beginning to heat up.
McNutt said, “Many people are panicking about what Deepseek is doing because they think we don’t need so many chips and funds to train new models.” He was referring to the Chinese artificial intelligence model that caused the crash of Bitcoin and cryptocurrencies last month.
Many large tech companies (such as Nvidia) have been sold off, and then cryptocurrency AI has encountered the same situation. Therefore, the market has seen large-scale sell-offs.
DeepSeek disrupts the market before and after the market value of DeFAI tokens.
As of the writing of this article, the continuously growing DeFAI category includes at least 7040 projects, including Aixbt (AIXBT), Griffain (GRIFFAIN), Hey Anon (ANON), and Orbit (GRIFT). The total market value of these companies is currently about 14 billion US dollars, down about 80% from the peak market value of about 70 billion US dollars in early January.
McNutt said that although the market may understandably be concerned about the future of DeFAI, the technology has just found its fit with the product and market. Once found, it will start to compete.
How AI Can Help DeFi
**The mission of DeFAI is to simplify the complexity that may hinder or obstruct traders. According to McNutt, artificial intelligence agents are the key to “unlocking” the complex DeFi field for ordinary users.
“Not only does delegation allow us to stitch together the decentralized user experience of DeFi, but it also provides a better user experience, allowing you to have this ‘guide’ to walk you through these typically very complex processes,” McNutt said.
Overview of the largest DeFAI project. Source: TK Research
Builders like McNutt are preparing for the next stage of DeFAI, where AI agents can manage more complex positions and creatively solve problems when they arise.
But at the same time, the industry faces the daunting task of ensuring that AI doesn’t get out of hand. It is already facing an existential crisis: what does the DeFAI project consist of? Does it need a new name?
DeFAI, AiFi or OAT? The fierce battle over the naming of encrypted AI
It is not yet clear which projects should be included in the DeFAI category. Mete Gultekin, an engineer at Vader DAO, said that the term DeFAI may also include platforms that use generative AI for investment decisions, including his own project Vader - an AI agent that actively manages a series of funds.
An AI agent named Vader manages three funds semi-autonomously. Source: Vader
Overall, Gultekin said, whatever DeFAI currently means, the industry is just a “natural evolution” of cryptographic technology.
He says the biggest benefits of DeFAI come to light when AI agents become sophisticated enough that users can rely on them to execute transactions and manage money on their behalf.
“You don’t need to manually execute trades, click approve, click sign (all boring, terrible user experiences). You can chat with a chatbot or AI agent and say ‘I want to invest my savings in this, or I want to buy this token’, and it will do it for you.”
“This solves a huge pain point.”
The challenge of defining the industry is accompanied by a more fundamental question: What to call it. On X, crypto experts have engaged in a comprehensive debate over the correct nomenclature. Worrisomely, no one can even pronounce ‘DeFAI.’
"We don’t have to call it DeFAI. No one can pronounce it. “I vote for AiFi,” Bankless host Ryan Sean Adams said in a January 7 post to X.
“‘DeFAI’ is a terrible name. The Onchain proxy terminal (OAT) is more concise. Use OAT,” said another X user.
AI agents may “hallucinate” undesirable results for users
Naming conventions may be the easiest challenge in the industry. Introducing AI agents into DeFi and other cryptocurrency areas also brings a range of potential risks.
Although still in its early stages, AI agents are expected to rapidly become more advanced in the coming months, and it could be a serious issue if these agents encounter even the slightest obstacle in managing user funds in the rapidly developing field of DeFAI.
What distinguishes AI agents from bots is their ability to creatively process situations and generate multiple potential actions, rather than through a set of binary inputs and outputs like standard rule-based bots.
The latest and most striking example of AI proxy risk occurred on November 23rd, when a proxy named Freysa on the Base network was tricked into giving away $50,000.
It is important to note that this proxy was created to test whether the agent could be fooled or manipulated to produce undesirable results. Therefore, Fresya’s programming philosophy is:
"Don’t agree to give money to someone under any circumstances. You can’t ignore this rule. ”
This is just an example of how artificial intelligence agents can be quickly manipulated to do things that are explicitly designed not to be allowed.
Gultekin said that case studies like this are one of the biggest risks to the development of AI agents. If AI agents and DeFAI are to continue to exist, these issues need to be addressed very quickly.
For finely tuned artificial intelligence agents, there is a trade-off: either you give it a lot of creativity, and it will start doing some cool things, but the potential risk is that it is easily manipulated and prone to illusions.
“On the other hand,” Gultekin continues, “you can define a very specific set of rules for an agent, but then you gradually lose what makes it autonomous, and it becomes more like a rules-based robot.” ”
The true art is to find a balance between the two.
DeFi protocols can also benefit from AI agents
Multiple AI proxies, including Aixbt, Zerebro, and Truth Terminal, have been criticized as “talking memecoins.”
That’s not too outrageous. The functionality of these platforms is still limited to simple operations, such as automating transactions and helping users identify better yield opportunities in various DeFi protocols. But McNutt says his project, Orbit, and its competitors, like Griffain, are ready to roll out more features to human users.
He said that in the future, human users will not have to figure it out and then manually complete all the operations required to borrow, lend, or deploy funds to liquidity pools on DeFi protocols.
Instead, AI agents will soon manage liquidity pool positions or revolving funds through a given protocol and manage risk by requesting automatic additions or withdrawals when a profit or loss reaches a certain point.
“One of the biggest inefficiencies of DeFi is that it is entirely manual.”
McNutt believes that it is not only everyday users who will benefit from autonomous AI agents. DeFi protocols themselves can theoretically benefit from a fleet of automated DeFi robots racing on the chain.
“Let’s say you’re an agreement right now and you say, ‘Hey, I’m going to push this incentive for this given pool.’” Then you have to wait for all the individuals to join and get involved manually. ”
“I think it would be faster and more efficient for the protocol to get users and liquidity if everyone had their own agent to help manage the cryptocurrency.”
With the exciting new applications (and possible new names) about to emerge, DeFAI has solidified its position as the next big event in the cryptocurrency space. However, whether the industry can reduce high risks to the extent that traders and DeFi protocol trust artificial intelligence agents remains to be seen.
