Last Updated: August 2, 2023
• Decentralized Finance (DeFi) promises users access to open protocols and smart contracts that would have replaced banks as efficient, cost-effective, and transparent alternatives.
• AI is solving one of the biggest issues for DeFi – liquidity. Low liquidity means wild price swings during booms and busts, which has caused a 25% decrease in Total Value Locked (TVL).
• DeFi companies are already finding alternative solutions to this problem by implementing arbitrage staking with AI protocols to amplify the liquidity in DeFi.
Decentralized Finance (DeFi) promises a future where financial services won’t be in the hands of just a handful of big banks. In the future, users might not have to rely on financial institutions as middlemen. Instead, they will have access to open protocols and smart contracts that would have replaced banks as efficient, cost-effective, and transparent alternatives.
Liquidity Issues Plaguing DeFi
Compared to traditional finance and even the rest of crypto, the DeFi space is still tiny. According to Messari, DeFi makes up just 0.2% of the global financial services market. The relative size of DeFi means finding willing buyers or sellers at any moment can be difficult. This translates into liquidity issues for DeFi, and wild price swings during booms and busts. For instance, 2022 saw most crypto and tech markets slump due to an unfavorable macroeconomic environment which caused a 25% decrease in Total Value Locked (TVL).
AI Powered Staking
To deal with the issue of low liquidity, DeFi space needs market markers or firms with enough capital to arbitrage. Few major financial players are willing to bet on this emerging space however Mosdex CEO Joseph Emmett suggests AI protocols could reach scale unseen in tradfi and amplify the liquidity in DeFi by detecting slight price differences between exchanges , DeFI protocols ,and reward stakers .
Despite its small size compared to traditional finance markets ,DeFI is still growing according to analysts at firms like Messari .However ,low liquidity continues to be an impediment for growth .In order to solve this issue ,DeFI companies are exploring AI powered staking as an alternative solution .
Artificial intelligence has become increasingly essential for decentralized finance as it helps improve liquidity by detecting slight price differences between different platforms .If implemented correctly ,AI powered staking could unlock unparalleled levels of Liquidity within Defi markets .