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By Cloris Chen
The financial landscape is undergoing a significant shift, driven by the convergence of AI and blockchain technology, holding an immense potential to enhance TradFi (Traditional Finance) products and create entirely new investment opportunities.
Tokenization, the process of converting real-world assets (RWAs) like real estate, art, and commodities into digital tokens on a blockchain, is unlocking new avenues for investment. However, to reach its full potential, tokenization needs a vital ingredient: AI.
The Smart Engine for Smarter Investing
Traditional asset management often relies heavily on fundamental analysis, where factors like financial statements and economic trends are scrutinized to identify undervalued or overvalued assets. However, AI offers a more sophisticated approach.
Centralized AI models suffer from transparency issues. Many centralized AI systems are not open-source. Instead, they are controlled by some stakeholders who fail at democratizing the potential. This unchecked structure makes interference easy and sometimes, leads to deficient results. Meanwhile, big corporations like BlackRock, the world’s largest asset management firm, are looking to transform financial products into tokenized assets.Â
Blockchains provide data integrity through smart contracts, fostering trust in tokenized systems. Decentralized AI empowers users, ensuring data security and eliminating single points of failure.
AI's ability to analyze vast datasets and identify patterns in real-time offers valuable insights for investment decisions. AI can assist in traditional fundamental analysis, uncovering hidden patterns and optimizing portfolio allocation. Large Language Models (LLMs) and Natural Language Processing (NLP) can analyze text data, gauging market sentiment and predicting future trends. Studies, like the one by Kim and Nikolaev (2023), suggest LLMs can outperform traditional models in forecasting returns.
Enhancing TradFi Products with AI-Managed Portfolios
Imagine creating a personalized portfolio of assets, tokenizing it, and offering it on the blockchain for increased accessibility and liquidity. AI can be the engine behind this transformative concept.
AI algorithms can dynamically manage portfolios, optimizing asset allocation and risk profiles based on market conditions and investor goals. By combining AI-powered portfolio management with the transparency and security of blockchain technology, TradFi products can offer potentially improved performance with on-chain exposure.
Centralized AI models controlled by a few stakeholders raise concerns about bias and data manipulation. Decentralized AI addresses these issues as decentralized models promote open-source collaboration, leading to a more robust and unbiased AI ecosystem. Moreover, it provides users with greater control over their data and ensures transparent decision-making by the AI models. It also ensures individual or institutional investors do not need to worry about losing data because those in charge turned off their servers. While it may take some time, decentralized AI, through the use of cryptographic verification like the Proof-of-Honesty (PoH) holds a lot of potential.
The Future of TradFi: A Collaborative Landscape
While decentralized AI adoption is still in its early stages, partnerships between TradFi companies and Web3 firms are paving the way for a more integrated future. We're witnessing a shift from traditional stock portfolios to DeFi protocols and crypto-backed ETFs.
Investment firms are also taking note, with companies like Arete Capital investing in projects like Ondo, a platform facilitating asset tokenization.
The recent merger proposal by SingularityNET, Fetch.ai, and Ocean Protocol to form a decentralized AI platform called Artificial Super Intelligence (ASI) signifies a crucial step towards a robust decentralized AI infrastructure. Before the announcement, all three AI companies were separate entities, increasing the likelihood of power dynamics residing in the hands of a select few companies. This move promises greater transparency, less bias, and wider accessibility to AI innovations.
Imagine a future where AI guides your investment decisions, uncovering hidden trends and optimizing your portfolio. Tokenization unlocks a universe of new investable assets, all secured by the transparency and immutability of blockchains. Decentralized AI ensures a fair and unbiased playing field, empowering users with control over their data and fostering trust in the system. This is not a distant utopia – it's the future of TradFi, and it's arriving sooner than you think. Â
AI-powered portfolio management combined with the security and transparency of blockchains can transform TradFi products, offering investors greater flexibility, enhanced returns, and secure on-chain exposure. As decentralized AI matures, its impact will likely extend beyond TradFi, revolutionizing various industries by democratizing access to powerful AI innovations.
Author Bio
Cloris Chen is the CEO of Cogito Finance, a DeFi platform offering institutional-grade investment products by tokenizing fixed-income assets and equities.Â
Cloris combines a banking background with hands-on DeFi experience. She spent 6 years at HSBC and served as treasury director for a unicorn startup.Â
This diverse experience of the CEO helps Cogito to address challenges in DeFi, such as unsustainable yield farming, credit risk, and regulatory uncertainty through tokenization. As a SingularityNET partner, Cogito harnesses Ben Goertzel's AI expertise for the company’s processes, including portfolio management.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.