# Can AI Simplify and Popularize DeFi?

As smartphones revolutionized financial services, can AI remove the complexities of DeFi (Decentralized Finance) and make it more mainstream? Amid the increasing role of algorithms and automation in the financial markets, the integration of AI and DeFi promises a transformative impact.

DeFi, though championing decentralized finance, still presents high entry barriers. Users must understand various blockchain networks, master smart contracts, and manage wallets. Additionally, regulatory uncertainties remain significant. Consequently, DeFi’s total transaction volume lingers at just 10-20% of centralized exchanges (CEX).

AI is gaining attention as a solution to these challenges. AI-based interfaces can make DeFi more intuitive, enabling users to navigate complex financial products seamlessly. Notable examples include AI trading bots, automated investment strategies, and voice/text-based trading systems.

Since the 1980s, algorithms have played a vital role in financial markets. Renaissance Technologies, founded by Jim Simons, exemplifies this trend. Its flagship Medallion fund achieved an average annual return of 39% from 1988 to 2018.

Currently, over 75% of the global foreign exchange market is algorithmically traded, underscoring AI-based automation as a core element of financial transactions. However, DeFi has not yet fully embraced automation. Unlike traditional finance, which has developed algorithmic trading over three decades, DeFi only began to grow significantly post-2020.

The DeFi boom of 2020 was sparked by Compound’s liquidity mining program, followed by the emergence of platforms like Aave, Yearn Finance, and other automated yield optimization protocols. However, profit generation remained complex, often leading to losses for inexperienced investors.

AI emerges as a potential remedy. By leveraging machine learning and natural language processing, AI can analyze users’ investment preferences and suggest optimal strategies. AI agents can execute smart contracts and handle complex transactions automatically, enhancing user experiences.

For example, AI-based DeFi interface HeyAnon enables users to perform swaps and bridging through natural language commands, eliminating the need to manually search for contract addresses. This indicates AI’s potential to elevate DeFi to the convenience level of centralized exchanges.

As of Q3 2024, the global assets under management (AUM) exceeded $80 trillion. In contrast, assets under management for Bitcoin (BTC) and Ethereum (ETH) ETFs were only about $150 billion. This disparity highlights investors’ preference for professional financial services over direct asset management.

Currently, CEXs handle over five times more trading volume than decentralized exchanges (DEX). This is primarily due to DeFi’s complexity, which AI could play a crucial role in reducing.

The combination of DeFi and AI, or ‘DeFAI’, presents a new financial paradigm where users could conduct simple conversations with AI agents to automatically execute investment strategies and manage portfolios.

However, current AI-based DeFi platforms remain in nascent stages. For instance, an analysis of AIXBT, a leading AI trading agent, showed that only 39% of AI-generated investment opportunities resulted in actual profits. This indicates AI’s strength in processing data and identifying opportunities but also its limitations in entirely replacing human judgment.

Moreover, executing AI’s capabilities presents challenges. For example, the AI trading bot Orbit recommended specific coins but failed to retrieve relevant data, highlighting the ongoing limitations in AI’s capacity for effective real-time trading.

Experts assert that AI should evolve not only to automate DeFi but also to simplify the market’s complexities and assist in investment decisions. Richard Feynman noted, “Machines may surpass humans in specific tasks, but only when combined appropriately will they realize their true value.” This underscores the approach necessary for AI to distinguish itself within DeFi.

Going forward, the DeFi market is likely to see AI agents collaborating in areas such as trade execution, market analysis, risk management, and portfolio optimization. AI-based DeFi platforms are expected to move beyond mere automation towards optimizing information analysis and execution strategies within financial markets.

Robinhood attracted over three million new users during the 2020 pandemic, successfully democratizing stock trading. Can DeFi seize a similar opportunity? DeFAI holds significant potential to lower DeFi’s high entry barriers, enabling broader user access. However, AI technology is not yet perfect, with many challenges still to be addressed. Will AI popularize DeFi or create another centralized financial structure? The answer depends on future technological advancements and the choices of market participants.