DeFAI is one of the hottest topics in the Ethereum ecosystem today. Developers are doubling down on this vision, building towards a future where bots – not humans – become the primary economic agents.
Bitcoin, however, will also play a central role in this future, with those same bots driving unprecedented demand for BTC as their chosen money.
Today, we explain why - and how.
What is DeFAI?
DeFAI stands for Decentralized Finance (DeFi) with Artificial Intelligence (AI). It represents the integration of AI technologies into DeFi to enhance, automate, and streamline various aspects of decentralized finance operations across blockchain ecosystems.
Some of the benefits of DeFAI include:
- Automation and Efficiency: AI agents can manage and optimize portfolios, execute trades based on predictive analytics, and even adjust strategies in real-time according to market conditions.
- User Experience: AI can interpret user intents, manage transactions, and provide personalized financial advice or recommendations, making the entire ecosystem more accessible.
- Risk Management: AI algorithms can analyze vast amounts of data to predict market movements, assess risk in real-time, and suggest or implement strategies to mitigate those risks
- Interoperability and Cross-Chain Operations: AI can facilitate interactions across different blockchains more effectively, enhancing interoperability, especially with Ethereum's L2 solutions where transactions can be processed more efficiently.
- Security: AI can monitor blockchain transactions to detect unusual patterns that might indicate fraud or money laundering. AI algorithms can also analyze smart contracts for vulnerabilities, helping to prevent hacks or exploits before they occur.
One leading project in Ethereum DeFAI today includes ORBIT, whose approach uses AI-driven DeFi protocols that use natural language processing to make DeFi more accessible and intuitive. Another is Hey Anon (ANON) which attempts to use AI to simplify transactions and user interactions.
Why DeFAI Will Love Bitcoin
Bitcoin, with its established market presence and inherent characteristics, is uniquely positioned to complement the objectives of DeFAI. A few of those reasons apply to BTC the currency, including:
- Stability and Store of Value: BTC's capped supply and its role as digital gold provide a stable value base for AI to operate within DeFAI. This stability is crucial for AI systems that need to make long-term financial predictions or manage assets.
- Liquidity: The immense liquidity of Bitcoin ensures it can be used effectively across various DeFi applications without significant price impact, which is vital for efficient AI-driven trading and liquidity strategies.
Alongside this, Bitcoin the network provides security and stability that AIs will seek to leverage wherever possible.
In a July 2023 Essay, BitMEX co-founder Arthur Hayes expanded on this idea, arguing that Bitcoin’s decentralization confers it permanent stability that immortal AIs desire, and that no other economic foundation dependent on humans can match. Hayes Wrote:
“An AI shouldn’t trust any institution that requires humans to operate it, as 1) humans are fallible and 2) AIs on a probabilistic basis will outlast human civilization… Bitcoin is thus the logical currency choice for any AI. It is purely digital, censorship-resistant, and provably scarce. There is nothing in existence today that comes close to challenging Bitcoin on these aspects.”
While AI will create immense value in the future, BTC will remain the scarcest, most secure tool to store that value. As such, AI agents operating in the DeFi arena will make BTC accumulation the centerpiece of their economic calculus – assuming they have access to it.
But how can BTC access DeFAI? After all, Ethereum is the king of decentralized finance, and Bitcoin lacks the programmability to host such services.
That’s where BitcoinOS (BOS) comes in.
How BitcoinOS Makes Bitcoin DeFAI Even Stronger
BOS is the magical middleware that lets Bitcoin and BTC connect to the ecosystems where DeFAI is most active. That includes Ethereum and EVM-based ecosystems, like MODE, and many others to come.
For several reasons, this will finalize Bitcoin and BTC as the most desirable network and asset for AIs to interoperate with.
- Trustless Bridging: By utilizing zero-knowledge proofs, BOS allows Bitcoin to move across blockchain ecosystems without the vulnerabilities associated with wrapped tokens like WBTC. Wrapped Bitcoin, due to its centralized custody and trust dependencies, becomes less preferential for AI systems which value security and autonomy. BOS's trustless mechanism provides an additional layer of security, which AI can rely on for risk-free operations.
- Bitcoin Security: Other blockchains, including Ethereum L2s, can plug into Bitcoin and begin inheriting the finality and permanence of the largest, most secure, energy-backed chain. Such chains will be desirable locations for AI agents prioritizing maximal blockchain security.
- Liquidity + Optionality: BOS provides universal interoperability and communication between all blockchain ecosystems, including Bitcoin, reducing the frictions of moving between each. This provides AI agents with the combined liquidity of all ecosystems when trading, as well as the optionality of using protocols across the crypto landscape in their trading operations.
- Unchained Tokens: BOS will provide programmable tokens secured by BTC that don’t natively “live” on any chain – a revolution for interoperability that reshapes how we think about digital assets. The simplicity of deploying and moving such assets will make them a natural token standard for AI to gravitate to, further reducing frictions for cross-chain interactions.
The benefits are mutual, of course. BOS lets Bitcoiners benefit from the many wonders of DeFAI already mentioned. Automation, efficiency, improved UX, better risk management, and security. For example, Bitcoin in Ethereum DeFAI can benefit from AI's real-time analysis for fraud detection and risk assessment, ensuring that the security of both Bitcoin and the DeFi applications is maintained or even enhanced.
In essence, BitcoinOS acts as a catalyst, making Bitcoin not just a currency but a backbone for DeFAI on Ethereum, where AI can truly shine by offering advanced, secure, and user-centric financial solutions.
We are approaching a future where the strengths of Bitcoin are amplified through AI, creating a more integrated, secure, and dynamic DeFAI ecosystem.
