DeFi’s UX Is Becoming A Deterrent To Adoption – Is AI The Antidote?

One of the great promises early on in the development of decentralized finance was that it would be a great financial leveler. Open financial protocols, accessible to everyone, would usher in a new era of peer-to-peer finance, lowering the barriers to credit for the traditionally less wealthy groups who often find themselves closed off from avenues of investment open to the already-rich.

Except four years after the “DeFi summer” that sparked this rhetoric, DeFi remains inaccessible to most people, hemmed in by its own subpar user experience. Instead of the original promise, newcomers immediately encounter a steep learning curve, high gas fees, user interfaces designed to deter engagement, risky protocols, and shaky interoperability.

User interest in DeFi tends to fluctuate with crypto prices, indicating that people are interested – when the opportunity exists. However, the incentive needs to be sufficiently large to make the pain of the user experience worth it.

Solving the problem on the application level seems, at this stage, futile. The ecosystem has evolved into a Frankenstein-like state, with Ethereum now supporting a plethora of Layer 2 platforms, each with its own dApp segment, linked by a series of bridges and interoperability protocols that must be navigated.

But what if it could simply be abstracted away? A new wave of innovators believes that DeFi represents low-hanging fruit for AI’s natural language capabilities. A user layer based on ChatGPT could provide a far more accessible interface that simply executes the user’s wishes under the hood. In tandem with emerging technology, such as intents, which operate based on user outcomes, there’s an opportunity to eliminate a significant part of the user experience friction. Furthermore, doing so opens up more investment opportunities and potential for users.

Gurps Rai, CEO at droppGroup, which has developed a blockchain-based solution for IP management of AI models and platforms, elaborates:

“Personalization is another significant benefit AI brings to the table, for example, leveraging AI to analyze user data and provide personalized investment recommendations. This not only improves user satisfaction but also increases engagement and retention by offering tailored financial advice that meets individual needs.”

He also points to several examples where AI is already embedded into DeFi, such as Numerai, a hedge fund using crowdsourced prediction models to manage its investments, and Harvest Finance, which uses AI to optimize yield farming strategies across multiple platforms.

However, Dominic Williams, the Founder and Chief Scientist at the DFinity Foundation which develops the Internet Computer protocol, has a vision for even more comprehensive functionality that makes it even easier to manage investments. Internet Computer is building the infrastructure for “decentralized AI” – on-chain smart contracts managed using automated agents. He explains how it could work:

“An AI smart contract might act as a wallet with intelligent broker functionality. For example, you could connect to your wallet on your phone and tell it, “if BTC reaches $100k, swap half of my BTC into USDC.””

This refers to future functionality, rather than capabilities available today, whereby these “wallet smart contracts” can react to trigger points automatically at any point in time, providing they’ve been programmed to do so.

Another future use case could be integrating AI smart contracts with automated market maker smart contracts used on DEXs, automatically changing community incentives in ways designed to attract maximum liquidity and minimize slippage. This would further enhance the UX since issues such as avoiding slippage and minimizing gas fees remain a challenge for users.

Converging AI with blockchain technology to produce something greater than the sum of its parts is still relatively unexplored territory, and solving DeFi’s user experience issues is far from the only use case under consideration. However, if there are any social or economic benefits to be gained from DeFi beyond a niche financial experiment, then leveraging the emerging capabilities of AI could be the best way to transform the DeFi UX from a deterrent into a selling point.