Just when regulators were finally getting their heads around DeFi, along came DeFAI, an offshoot whose AI-driven apps and protocols are already supercharging activities like trading, risk management, and yield optimization. While policymakers struggled to get to grips with garden-variety DeFi tools and platforms, the challenge now is to familiarize themselves with an industry moving at the speed of light.
Today, AI tokens are worth a staggering $23.6 billion with 24-hour trading volume sitting at $2.6 billion. As with DeFi before it, though, conversations are inevitably turning to how best to maximize innovation while also staying within the margins of compliance. Can DeFAI builders remain in regulators’ good graces while also pushing the envelope?
DeFAI’s Regulatory Wild West: Challenges and Opportunities
Whatever way you look at it, DeFAI protocols are taking builders, users, and regulators into uncharted waters; the use of artificial intelligence – on this scale and to generate income – is unprecedented. Legislators, then, must do their best to lasso the runaway stallion lest chaos reign.
In fairness, progress is already being made. The EU’s AI Act, unveiled last year, has explicit provisions on financial sectors, while a clearer regulatory picture in the U.S. is likely given President Trump’s announcement of both a Digital Asset Stockpile and Stargate, a $500 billion AI infrastructure initiative alongside OpenAI, Oracle, and SoftBank. If you’re going all-in on crypto and AI, as Trump seems to be doing, you’ll need to lay down some strong regulations.
Of course, AI is a double-sided blade: builders will use it to create impactful DeFAI products and services but hackers will also leverage it to rip off protocols and users. Aside from outright theft (smart contract exploits being a familiar vector), we can expect to see AI deployed for the purposes of good old-fashioned market manipulation, too.
Yet amid these challenges, opportunities shimmer like golden bitcoins tumbling from the browser faucets of old. If DeFAI can make good on its potential, TradFi’s movers and shakers will surely be drawn like a moth to the flame, bringing more liquidity and credibility to the entire DeFi space.
Staying Informed and Mitigating Risks
Let’s focus on users for a second, since they’re the ones who risk getting burned by the blazing comet that is DeFAI. A few rules of thumb apply if you want to keep your bags safe and profit from AI-powered DeFi rather than become a cautionary tale. Firstly, it’s a good idea to stay abreast of regulations yourself so you’re not placing blind trust in protocols. Secondly, DYOR: perform due diligence before connecting a wallet to a DeFAI protocol and expecting AI to pump your bags.
The former is easier said than done given how early we still are. One of the most comprehensive policy papers written on the use of AI in finance came from the Organization for Economic Co-operation and Development (OECD) last year. Entitled Regulatory Approaches to Artificial Intelligence in Finance, the report surveyed 49 jurisdictions and while it’s not DeFi-specific, it does provide an insight into how policymakers are thinking about the subject.
Among other things, the OECD warns that GenAI could amplify AI risks and calls for measures that ensure fair, transparent financial markets. Most respondents say they’ve got rules that “covers AI in (parts of) finance” but gaps linger and more guidance would be welcome.
One interesting point of consideration is that AI could be used to actually ensure protocols meet regulatory guidelines. Machine learning, for instance, could be deployed to identify contraventions such as potential market manipulation, amending code to meet compliance standards. Some protocols are also using ML to enhance their Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.
Giza: Compliance-Friendly DeFAI
Giza is an example of a forward-thinking DeFAI platform that prioritizes compliance and strives to provide users with a secure environment. Its autonomous yield optimization agent, ARMA, has proven a hit with over 14,500 agents launched and $760k in AUA (Total Assets Under Agent). Designed to simplify tasks on the Base blockchain, ARMA pursues strategies across popular lending protocols, executing moves based on continual analysis of market conditions.
With its smart account architecture, permission management, and decentralized execution network, Giza erects the necessary guardrails to ensure users stay in command rather than autonomous bots. If agents don’t exhibit predictable auditable behavior patterns, they simply aren’t rolled out.
And perhaps that’s the key to DeFAI’s success: regulators want assurances that agentic AI can’t simply run off the rails, manipulate markets, and fleece users. dApps and protocols that can provide these guarantees will get the seal of approval – while those that don’t will be deemed shady in the eyes of both policymakers and users.
Of all the fintech trends to have emerged in the last decade, DeFAI is the most exciting. While regulators focus on laying down the law, builders, and users are busy seizing the day and bending AI to their will. Let’s just hope innovation isn’t sacrificed on the altar of compliance.
