As you know, the decentralized finance (DeFi) landscape is quickly evolving. Here, at Calloutcoin.com, we’re always striving to keep you one step ahead of the pack. We issue targeted, deep-dive analyses on NFT standards and metaverse emerging technologies. We dive into digital identity solutions, the latest trends in DeFi and more. This is why we’re keeping a keen eye on the emergence of AI agents in DeFi. This trend is very exciting and could be hugely transformative. These new autonomous entities hold the potential to completely transform our relationship with decentralized finance while presenting a unique set of security challenges. Are your wallets ready for this revolution? Let’s dive in.

By the middle of 2024, acceptance of AI agents became de rigueur, and any project not including them seemed almost destined to be irrelevant. Panels at industry conferences were buzzing with excitement. Agentic DeFi and AI DAOs, they argued, are just the beginning, marking a new technological paradigm. Projects such as Autonolas, Fetch.ai and AgentLayer are at the forefront of a new generation of AI agents. They do address multiple pain points, making DeFi more user-friendly and making DAO coordination more efficient. This article discusses the growing role of AI agents in DeFi. In doing so, it highlights the limitations of legacy wallets in this rapidly changing landscape and passionately calls for the use of programmable wallets to protect users.

The Rise of AI Agents in DeFi

AI agents are usually autonomous software programs that can perform tasks on your behalf. They use AI to guide their decisions and actions and maximize results. In the world of DeFi, agents are responsible for liquidating your assets. They execute trades, allow you to go yield farm, perform other more complex actions—all automatically and without you even needing to touch a user interface.

The new interface layer is being defined by AI agents. As they often do, they take a confusing labyrinth of wallets and smart contracts, and make the technology accessible to all. The rise of autonomous agents opens new possibilities: hands-free DeFi strategies, real-time portfolio optimization, and cross-chain arbitrage. You can execute these agents on your local machine or via the Pearl network. Upon receiving your consent, they will deploy your capital according to AI-driven models and strategies they have already set up. The capabilities of AI agents in DeFi are vast:

  • Automated Trading: AI agents can analyze market data, identify profitable trading opportunities, and execute trades automatically, 24/7.
  • Yield Optimization: These agents can allocate funds across different DeFi protocols to maximize yield, automatically shifting assets based on changing conditions.
  • Cross-Chain Arbitrage: AI agents can identify price discrepancies across different blockchains and execute trades to profit from these differences.
  • Portfolio Management: Agents can manage your entire DeFi portfolio, rebalancing assets and adjusting strategies based on your risk tolerance and investment goals.

One of the best illustrations of this trend is Pearl, the agent app store that debuted late in 2023. It represented BabyDegen, an autonomous DeFi trading agent. Fetch.ai recently released a new uAgents framework to simplify agent development, thereby accelerating the rise of intelligent agents. They’ve released an integrated AI agent, “Fetchbot” for their wallet and offered developers an “Agentverse” IDE. Projects such as Aperture Finance even showcased AI-driven portfolio management, pushing AI’s potential in DeFi into the spotlight.

The Vulnerabilities of Traditional Wallets

Functional, yes—but traditional wallets were never built to contain the complexities and new risks that AI-driven DeFi has introduced. Authorization methods These wallets generally require users to authorize transactions using private keys. This approach is much more susceptible to attack vectors, particularly when combined with autonomous agents.

  • Private Key Exposure: If an AI agent is compromised, an attacker could gain access to the private key, allowing them to steal all the funds in the wallet.
  • Phishing Attacks: Sophisticated phishing attacks can trick users into revealing their private keys, giving attackers control over their wallets and any associated AI agents.
  • Smart Contract Vulnerabilities: AI agents often interact with smart contracts, which can contain vulnerabilities that attackers can exploit to drain funds from the wallet.
  • Lack of Granular Control: Traditional wallets lack the ability to set granular permissions for AI agents, meaning an agent with access to the wallet can potentially perform any action, even if it's not intended.

The case of the Telegram-based trading bot Banana Gun from September 2024 illustrates this. Not only does it celebrate the greed behind those kinds of risky ventures. Attackers exploited an oracle vulnerability, making off with users’ funds by intercepting messages to get unauthorized access to user wallets. Thus far, users have lost 563 Ether or about $1.9 million. This unfortunate event illustrates the pressing requirement for safeguard infrastructure in line with AI-powered DeFi 3.0.

Programmable Wallets: A Necessary Security Measure

Programmable wallets, or smart contract wallets, provide a significantly more secure and flexible option compared to traditional wallets. These wallets function as smart contracts, meaning that you can program your own unique logic and rules. Namely, they provide more robust security measures and allow you to have more control over their access and use of your funds.

  • Multi-Signature Authorization: Programmable wallets can require multiple approvals for transactions, making it more difficult for attackers to gain unauthorized access to funds.
  • Spending Limits: Users can set daily or weekly spending limits for AI agents, limiting the potential damage from a compromised agent.
  • Whitelisting: Programmable wallets can be configured to only allow transactions to whitelisted addresses, preventing AI agents from interacting with malicious contracts.
  • Revocable Access: Users can revoke access to AI agents at any time, preventing them from performing any further actions with the wallet.

Coinbase CEO Brian Armstrong recently oversaw the first fully AI-managed crypto transaction, where bots independently traded with other AI agents. Produced in collaboration with LongHash Ventures, this year’s summit focused on the need for secure, programmable wallets that can protect users and navigate the new complexities of AI-driven DeFi.

How to Prepare for the Shift to AI-Driven DeFi

AI agents have recently been making headway into DeFi. That’s why it’s so important to protect your assets in advance and prepare for this transition. Here are some actionable insights to help you get started:

  1. Research Programmable Wallets: Explore different programmable wallet solutions and choose one that meets your security needs and technical capabilities. Look for wallets that offer features like multi-signature authorization, spending limits, and whitelisting.
  2. Understand AI Agent Risks: Before using any AI agent, thoroughly research its security practices and potential vulnerabilities. Look for agents that have been audited by reputable security firms.
  3. Set Granular Permissions: When granting access to an AI agent, be sure to set granular permissions that limit its ability to perform actions with your wallet. Only grant the agent the minimum permissions it needs to perform its intended function.
  4. Monitor Agent Activity: Regularly monitor the activity of your AI agents to ensure they are behaving as expected. Look for any suspicious transactions or unusual behavior.
  5. Diversify Your Wallets: Don't put all your eggs in one basket. Diversify your assets across multiple wallets, including both traditional and programmable wallets.
  6. Stay Informed: Keep up-to-date on the latest security threats and best practices in the DeFi space. Follow reputable security researchers and industry experts.

The Role of Data Infrastructure in AI-Driven DeFi

The potential success or failure of AI agents operating in DeFi will depend on access to clear, consistently high-quality data. AI agents require low latency, real-time information to determine the best actions for trading, yield optimization, and portfolio management. This is where data infrastructure partners — like sqd.ai in the transportation space and Chainbase in web3 — can help.

Sqd.ai, formerly known as Subsquid, is in the process of developing an open database network for Web3 services and AI agents. This network will eventually connect over 100 EVM and Substrate based networks. With indexing speeds that surpass 150k blocks per second, Sqd.ai provides the fastest indexer on the market. It is readily scalable to increasing data burdens simply by plugging in more processing nodes. This combination of speed and scalability will be critical for AI agents that must analyze terabytes of data in real-time to support their missions.

Omnichain verifiable structured on-chain datasets from Chainbase greatly enrich AI agents for trading, insight and prediction, alpha sourcing, and more. By delivering organized and easily verifiable data, Chainbase empowers AI agents to avoid biases and misleading information, ensuring they can make accurate and trustworthy decisions.

Conclusion

AI agents are poised to reinvent the DeFi space. They will open state-of-the-art new avenues for automated trading, yield optimization, portfolio management and beyond. These agents pose new security threats that traditional wallets can’t protect against. Conversational wallets are advancing into an alternative that’s much more secure, flexible, and customizable. They provide additional security measures and provide you with more control over how you use and access your funds. Safeguard what matters most and prepare for the transition to AI-powered DeFi. In doing so, you’ll position yourself to harness the power of this exciting technology while avoiding its pitfalls.

Here at Calloutcoin.com, we grapple with the momentum of AI agents in DeFi. We’ll be bringing you the freshest insights and analysis, so stay tuned! Watch this space for more news coming soon and don’t forget to sign up for our newsletter for premium, subscriber-only content.