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How Crypto, AI are Influencing Future of Finance

In recent years, the landscape of cryptocurrency has witnessed significant transformations. In addition to the stimulus-fueled boom of 2021, venture capital (VC) companies invested an astounding $33 billion in blockchain and cryptocurrency startups.

However, subsequent events such as the Federal Reserve’s interest rate hikes triggered a series of bankruptcies and collapses within the crypto market, including Terra (LUNA) and FTX. Further, despite initial optimism, the concept of Decentralized Finance (DeFi) encountered setbacks, including more than $3 billion in losses due to DeFi hacks in 2023. Moreover, the ongoing Bitcoin bull run underscored a lack of confidence in alternative coins.

Yet, amid these fluctuations lies an intriguing possibility at the intersection of artificial intelligence (AI) and blockchain technology. Reflecting on past cycles prompts us to envision a landscape where AI intertwines with crypto.

Previously, DeFi evolved into centralized entities such as BlockFi and Celsius Network, blurring the lines between CeFi and DeFi. To revitalize DeFi, a renewed focus on user experience and security is imperative. With that as a backdrop, he zero-knowledge Ethereum Virtual Machine (zkEVM) emerges as a promising solution enhancing network throughput and simplifying user experiences while fortifying security.

Moreover, AI applications, which inherently generate vast amounts of data, face scalability challenges on blockchain networks. Here, solutions such as Polygon zkEVM pave the way for innovations such as AI-generated artwork tokenized as Non-Fungible Tokens (NFTs).

The synergy between smart contracts and AI sets the stage for a more autonomous and efficient financial infrastructure. Through composability, where smart contracts interact across various protocols, the foundation for innovation is laid. Composability facilitates innovation across three layers: morphological, atomic and syntactic. This modular approach resembles Lego bricks, allowing for the seamless integration of different protocols, such as Compound, which enables users to supply liquidity without intermediaries. Liquidity providers earn interest in the form of cTokens, which can be utilized across compatible protocols.

However, managing the complexity arising from composability poses a challenge, one that AI is well-equipped to address. With its ability for superhuman processing, AI can optimize market efficiency by monitoring real-time data and coordinating transactions across platforms, potentially mitigating market inefficiencies and reducing human error.

The convergence of blockchain technology and AI extends beyond financial markets, with implications for various sectors. Projects such as Fetch.AI exemplify this trend, offering open-access protocols to connect Autonomous Economic Agents and facilitate transactions through AI-driven networks.

As the value of AI-crypto tokens surges, democratizing access to AI agents becomes paramount. FET token, for instance, aims to facilitate AI deployment and incentivize network participants, driving growth in the AI market.

Looking ahead, the integration of AI and blockchain promises a future where AI agents interact seamlessly with decentralized protocols, revolutionizing decision-making processes. While institutional adoption remains a hurdle, open-access ecosystems and innovative projects such as the Allora Network and Injective Protocol are poised to reshape the landscape.

Indeed entities such as Stronghold Digital Mining Inc. (NASDAQ: SDIG) may already be exploring vible ways to leverage the convergence of AI and crypto in order to improve their offerings to customers and investors.

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