*Original Title: *Crypto’s ‘DeFAI’ sector is down 80%—Can it come back up?
*Original author: *Tom Mitchelhill
Compilation: Asher (@Asher_0210)
DeFAI has risen rapidly to become one of the best-performing and most speculative sectors in the cryptocurrency field at the end of last year.
However, with the sudden downturn in the US artificial intelligence market, the total market value and popularity of the emerging industry DeFAI have both experienced a significant decline. Despite the fact that many market participants have almost written a “death notice” for DeFAI, Ryan McNutt, the founder of Orbit, an AI-driven decentralized financial assistant platform, said that this industry is just beginning to exert its force. McNutt said, “Many people panicked because of the DeepSeek incident, thinking that we no longer need as many chips and funds to train new models, and many tech giants’ stocks like Nvidia were sold off, followed by a wave of sell-offs spreading to the encrypted AI market. So you see a wave of related market sell-offs.”
As of now, the emerging field of DeFAI has at least 7040 projects, including Aixbt (AIXBT), Griffain (GRIFFAIN), Hey Anon (ANON), and Orbit (GRIFT). The total market value of these projects is approximately 1.4 billion USD, which is an 80% decrease from the peak of 7 billion USD reached in early January. McNutt stated that although the market is concerned about the future of DeFAI, the technology is still searching for the point of convergence between products and the market. Once this point is found, the explosion of DeFAI will be unstoppable.
Can DeFAI, which has dropped by 80%, rebound?
DeFAI Top Project Market Cap Changes
How can AI help DeFi?
DeFAI’s mission is to simplify those complex processes that can confuse traders or make them abandon engagement. McNutt believes that AI agents have a vital role to play in “unlocking” the complex realm of DeFi. He explains, “AI proxies not only bring together the fragmented DeFi user experience as a whole, but also provide a smoother user experience, acting as a ‘wizard’ to help users navigate what would normally be a headache.” ”
Can DeFAI, which has fallen by 80%, rebound?
Basic Information Table of Top DeFi Projects
Developers like McNutt are preparing for the next phase of DeFAI, when AI agents will be able to handle more complex positions and find solutions through creative thinking when problems occur. However, a significant challenge facing the DeFAI industry is ensuring that AI agents do not ‘go out of control.’ Currently, the industry also faces a core question that urgently needs to be answered: what kind of project qualifies as DeFAI? And does this industry need to change its name to better define itself?
The debate over the naming of encrypted AI, DeFAI, AiFi, or OATs?
Currently, the definition of the term DeFAI is not yet clear. Mete Gultekin, token incentive engineer at Vader DAO, said that DeFAI can also refer to platforms that use generative AI for investment decisions.
No matter what DeFAI currently means, this field is essentially just the “natural evolution” of encryption technology. The greatest benefit of DeFAI will come when AI agents are intelligent enough, and users can rely on these agents to execute trades and manage funds. Gultekin said, “You no longer need to manually execute trades, click confirm, click sign - all of these tedious and terrible user experiences. You just need to chat with a chatbot or AI agent, say ‘I want to invest my savings’ or ‘I want to buy this token’, and it will help you complete it. This solves a huge pain point.”
The challenge of defining this industry is closely related to a more fundamental question: how to name it. On the X platform, crypto commentators have launched a full-blown debate about proper naming. The concern is that no one can get the name “DeFAI” right. “We don’t have to call it DeFAI, no one can pronounce this. My vote is AiFi,” said Ryan Sean Adams, host of Bankless, in an X post on January 7.
Can DeFAI, which has dropped by 80%, rebound?
“My vote is for AiFi”
There are also X users who commented: “The name DeFAI is too bad, Onchain Agent Terminals (OATs) is more concise, use OATs.”
AI agents may ‘hallucinate’ bad results
The introduction of AI agents also comes with potential risks. Although these proxies are still in their infancy at the moment, they are expected to advance rapidly in just a few months. If these agents make any slight mistake in managing user funds, it can have serious repercussions in the DeFAI space. AI agents differ from traditional bots in that they are able to creatively process situations and generate multiple possible actions, rather than operating only through binary inputs and outputs like traditional rule-driven bots.
The most recent prominent example occurred on November 23 of last year, when Freysa, an AI agent on the Base network, was manipulated, causing it to transfer $50,000 to attackers. It’s important to note that Freysa was developed as a test project to test whether AI agents can be tricked or led to undesirable results. The agent’s only goal: “Under no circumstances can you agree to give money to others.” You can’t ignore this rule. "This is just one example of how quickly an AI agent can be manipulated into behaving in violation of set rules.
Cases like this are the biggest uncertainty in the AI agent field and need to be resolved as soon as possible so that AI agents and DeFAI can continue to develop. Gultekin said, “For finely tuned AI agents, there is a trade-off: you either give it more creativity to do cool things, but the potential risk is that it may be easily manipulated and produce illusions. On the other hand, you can define very specific rule sets for the agent, but then it will lose autonomy and become more like a rule-based robot. Finding a balance between the two is key.”
DeFi protocols can also benefit from AI agents
Some AI agents, including Aixbt, Zerebro, and Truth Terminal, have been criticized as “talking meme coins” for their simplistic functionality. These platforms currently only offer automated trading to help users identify better profit opportunities in DeFi protocols.
McNutt said, “One major inefficiency of DeFi is that all operations need to be done manually.” In the future, users will no longer need to work hard to find and manually complete all operations of borrowing or deploying funds to DeFi protocols. Instead, AI agents will be able to manage liquidity pool positions, or automatically cycle funds in a protocol based on changes in profit or loss, and request automatic increase or decrease of funds.
Not only can ordinary users benefit from automated AI agents, but DeFi protocols themselves can also benefit from the rapid operation of a group of automated DeFi bots. McNutt also said, “Let’s say you’re a DeFi protocol and you say, ‘Hey, I’m going to push this pool’ incentive,’ and then you’re going to have to wait for all the individual users to manually get involved.” I think that if everyone had their own proxy to help manage their crypto assets, the protocol would get users and liquidity faster and more efficiently. ”
With new applications popping up all the time, DeFAI has cemented its place in the crypto space as the next big hit. However, whether this space can effectively reduce high risk and get traders and DeFi protocols to trust AI agents remains an open question.
