{"id":403482,"date":"2024-03-16T08:00:39","date_gmt":"2024-03-16T08:00:39","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=403482"},"modified":"2024-03-16T02:25:18","modified_gmt":"2024-03-16T02:25:18","slug":"how-ai-and-crypto-are-shaping-the-future-of-finance","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/how-ai-and-crypto-are-shaping-the-future-of-finance\/","title":{"rendered":"How AI and crypto are shaping the future of finance"},"content":{"rendered":"

Over the last three years, the crypto space has undergone massive upheavals. Alongside the boosting from stimulus packages in 2021, venture capital (VC) firms had invested <\/span>$33<\/strong><\/span><\/a> billion in crypto and blockchain startups.<\/span><\/p>\n

The following year, the Federal Reserve triggered a domino of crypto bankruptcies with its interest rate hiking cycle, starting from the Terra (LUNA) crash and culminating in the FTX Ponzi scheme collapse.<\/span><\/p>\n

The promise of DeFi lost its luster, not helped by over $3 billion lost in DeFi hacks during 2023. The ongoing Bitcoin bull run shows the lack of altcoin confidence as the so-called <\/span>Altcoin Season<\/a><\/strong> is yet to manifest.<\/span><\/p>\n

In June 2023, BlackRock's head of strategic partnerships, Joseph Chalom, <\/span>noted<\/a><\/strong> that DeFi's institutional adoption is \u201cmany, many, many years away\u201d. However, there is a case to be made that the emerging AI narrative can fuse with blockchain technology and its applications.<\/span><\/p>\n

Taking in lessons from the previous cycle, what would that AI-crypto landscape look like?<\/span><\/p>\n

Laying the AI Foundation with Crypto Composability<\/strong><\/h2>\n

Looking back, it is safe to say that \u201cDeFi\u201d was subsumed by companies on top of tokenized layers, such as Celsius Network or BlockFi, rendering DeFi into CeFi. These companies successfully drove crypto adoption as such, only to end up sullying the very word \u201ccrypto\u201d.<\/span><\/p>\n

A renewed DeFi v2 should then focus on a superior user experience that doesn\u2019t spark the demand for centralized companies to make it so. Most importantly, DeFi security must be fortified. The most promising solution in that direction is the zero-knowledge Ethereum Virtual Machine – zkEVM.<\/span><\/p>\n

By abstracting chain transactions via zero-knowledge proofs (ZKPs), zkEVM increases network throughput and reduces gas costs. On top of that, zkEVM simplifies the user experience by facilitating alternative token payments for gas fees. In other words, zkEVM-like solutions pave the road to scalability needed for AI applications.<\/span><\/p>\n

AI applications inherently involve high volumes of data, making it a potential bottleneck for blockchain networks. With this obstacle ahead, Polygon zkEVM makes it possible to generate AI artwork via the Midjourney image generator. In <\/span>this process<\/a><\/strong>, the results could be tokenized as NFTs with low fees.<\/span><\/p>\n

Building further on smart contracts of other kinds, the crypto space has laid the groundwork for AI with composability and permissionless access. Combined, this creates an autonomous and efficient infrastructure for financial markets. As every piece of market action can be disassembled into smart contracts, composability brings innovation across three composability layers:<\/span><\/p>\n