1.1 Background
Decentralized Finance (DeFi) has emerged as a game changer in the financial industry, disrupting conventional standards by providing a decentralized alternative to traditional financial services. DeFi systems, powered by blockchain technology, enable peer-to-peer transactions, lending, borrowing, and trading without the need for intermediaries, democratizing access to financial services and promoting financial inclusion (Wright, 2021). Despite its great promise, the DeFi ecosystem's quick growth has exposed a number of obstacles, including scalability constraints, security risks, and user experience complications (Habbal, Ali, & Abuzaraida, 2024).
In paralel, Artificial Intelligence (AI) has gained popularity for its capacity to analyze vast amounts of data, derive important insights, and automate decision-making processes in a variety of industries, including banking (Habbal, Ali, & Abuzaraida, 2024).
The use of AI into DeFi provides a unique chance to overcome these difficulties and open up new avenues for innovation. DeFi solutions may improve risk management, fraud detection, and user interfaces by employing AI-powered algorithms and predictive analytics to provide more intuitive and customized financial services. The combination of AI and DeFi has great promise for altering the future of banking. With AI's capacity to handle massive quantities of data and react to changing market conditions, DeFi solutions may become more efficient, secure, and sensitive to consumer requirements. However, this integration poses major questions about ethics, transparency, and regulatory compliance (Wright, 2021).
The marriage of Artificial Intelligence (AI) with Decentralized Finance (DeFi) ushers in a new era of financial innovation and disruption. DeFi, enabled by blockchain technology, has rewritten the rules of money by providing borderless, permissionless, and censorship-resistant financial services. However, the young DeFi ecosystem has a number of obstacles, including scalability limitations and security concerns, which limit its potential for mass use (Basly, 2024).
In this setting, AI emerges as a powerful catalyst positioned to address these difficulties and unleash hitherto undiscovered prospects in the DeFi domain. AI's ability to analyze large datasets, generate meaningful insights, and automate decision-making processes promises to improve the efficiency, security, and accessibility of decentralized financial protocols. From maximizing yield farming tactics to improving risk management frameworks, AI-driven solutions hold the key to strengthening DeFi's core pillars.
Furthermore, integrating AI into DeFi has the revolutionary potential to democratize access to sophisticated financial services while promoting global financial inclusion. By leveraging AI-driven algorithms, DeFi platforms may design individualized financial solutions, eliminate systemic risks, and pave the path for a more robust and inclusive financial environment.
As we continue our research into AI integration with DeFi, it is critical that we dig into the complex intersections of these two disruptive technologies. We want to uncover the synergies that support the confluence of AI and DeFi using a multidisciplinary perspective that includes technological, regulatory, and ethical components, therefore charting a route for a more egalitarian and sustainable financial future (Basly, 2024).
This chapter will take a detailed look at the integration of Artificial Intelligence in DeFi. We hope to give insights into how AI might transform decentralized finance, drive innovation, and promote greater financial inclusion in the digital age by exploring real-world use cases, emerging trends, and legal frameworks.