News ReleaseExploring Investment Opportunities Where AI Meets Crypto
HTX Ventures
Singapore / June 6, 2024 – In recent years, the rapid development of artificial intelligence (AI) and blockchain technology has made the AI + crypto sector an investment magnet. Blockchain’s characteristics of decentralization, high transparency, low energy consumption, and anti-monopoly complement the centralized and opaque nature of AI systems. The fusion of these technologies brings unprecedented opportunities. According to Vitalik Buterin, Ethereum's co-founder, the applications of combining AI and blockchain can be categorized into four types: AI as a player, AI as an interface, AI as the rules, and AI as the objective. He suggests that AI's role in crypto should be considered more from an "application" perspective, including optimizing computing power, algorithms, and data. HTX Research distinguishes crypto technology participation based on AI’s application levels, which can be divided into foundational, execution, and application layers. Each layer presents opportunities worth exploring. For example, zero-knowledge machine learning (zkML) technology, which combines zero-knowledge proofs and blockchain technology, offers a secure, verifiable, and transparent solution for AI agent behavior. Additionally, AI shows great potential in data processing, automated decentralized application (dApp) development, and on-chain transaction security within the execution layer. In the application layer, AI-driven trading bots, predictive analytics tools, and automated market maker (AMM) liquidity management are playing crucial roles in the decentralized finance (DeFi) sector. This article will delve into the investment opportunities where AI meets crypto, focusing on innovations and developments in the foundational and application layers. It will also analyze the prospects and challenges of combining AI and blockchain from mid-term and long-term perspectives. Key Opportunities in the AI Sector Blockchain and AI differ fundamentally in centralization, transparency, energy consumption, and monopolization. Based on this principle and his analysis, Vitalik has classified applications that combine AI and blockchain into four categories: ● AI as a player in a game ● AI as an interface to the game ● AI as the rules of the game ● AI as the objective of the game Vitalik approaches AI's role in the crypto world from an "application" perspective. Additionally, we can consider crypto as a means of facilitating technologies and resources, including three perspectives: - Optimizing Computing Power: Providing decentralized and efficient computational resources to reduce the risk of single points of failure and enhance overall computing efficiency. - Optimizing Algorithms: Advancing the open-source sharing and innovation of algorithms or models. - Optimizing Data: Enabling decentralized storage, contribution, usage, and secure management of data. HTX Research suggests that AI's development can be categorized into the foundational layer, execution layer, and application layer based on a general architecture. Correspondingly, we can also explore AI + Web3 projects from these dimensions. The foundational layer includes model training, data, decentralized computing power, and hardware, where particular attention should be given to combining zk (zero-knowledge) with AI/ML (machine learning) technologies. The execution layer involves data processing and transmission, AI agents, zkML, and FHE (fully homomorphic encryption). The application layer features AI + DeFi, AI + GameFi, the metaverse, AIGC (AI-generated content), memes, and blockchain-related technologies like RAAS (Robotics as a Service), oracles, coprocessors, and UBI (universal basic income). Rapid progress has been made in foundational and application projects. These include Io.net, a computing power project; Flock, a foundational model; ZeroGravity, a blockchain infrastructure; Myshell as an AI agent; and 0xScope in the application layer. We suggest exploring these opportunities: I. zkML zkML technology combines zero-knowledge proofs with blockchain to provide a secure, verifiable, and transparent solution for monitoring and constraining AI agent behavior. For example, the Modulus Labs project uses zkML to prove to stakeholders that their AI has performed specific tasks while protecting personal privacy and commercial secrets. As an intermediary between AI and blockchain, zkML offers a solution to address privacy protection for AI models and inputs and ensures the verifiability of the inference process. It has pioneered a method that allows using public models to verify private data or using public data to verify private models. Integrating machine learning capabilities enhances the autonomy and dynamism of smart contracts, enabling operation based on real-time on-chain data rather than merely static rules. This innovation makes smart contracts more flexible, allowing them to adapt to a wider range of applications, even those unforeseen at the contract's inception. Overview of Typical zkML Projects The first table presents promising zkML projects while the second lists other zkML projects. II. Data Processing This area includes breakthroughs in the execution layer of AI, particularly in blockchain data transmission and development layers. a. AI and On-chain Data Analysis This area involves using AI technology to deeply mine blockchain data and leveraging large language models (LLMs) and deep learning algorithms to gain more insights. The Web3 Analytics project, for example, uses AI for on-chain data analysis to discover market trends and user behavior. It helps users understand on-chain transactions and market dynamics more effectively. b. AI and Automated dApp Development This area focuses on infrastructure projects related to DevOps. AI projects using automated development can attract more developers, thereby making the ecosystem more prosperous. Some AI-powered development tools can help developers quickly write smart contracts and automatically correct errors. Others even offer drag-and-drop dApp programming capabilities. c. AI and On-chain Transaction Security This area involves AI agents. It entails deploying AI agents on the blockchain to enhance the security and reliability of AI applications. These AI agents can automatically perform tasks such as trading, data analysis, and automated decision-making. Deploying them on the blockchain ensures their operations are transparent, traceable, and tamper-resistant, thereby increasing the system's overall security. Through real-time monitoring and smart analysis, AI technology can identify and defend against malicious attacks and data breaches, ensuring transaction security and data integrity. • Project Example: SeQure is a security platform that uses AI for real-time monitoring and analysis. It detects and defends against malicious attacks and data breaches, ensuring the stability and security of on-chain transactions. III. AI + DeFi The most significant aspect of integrating AI with the application layer is AI + DeFi. Here are some key areas to focus on: 1. AI-driven Trading Bots These bots can execute trades swiftly and accurately by analyzing market data, news sentiment, and price trends to make instant decisions. They often outperform human traders. 2. Predictive Analytics While predicting the volatility of the crypto market has always been challenging, AI-driven analysis tools are becoming increasingly important. They can provide reliable forecasts of market trends and potential price movements. 3. AMM Liquidity Management For instance, when adjusting the liquidity range for Uniswap V3, integrating AI allows the protocol to more intelligently set the liquidity range. This optimizes the efficiency and profitability of AMMs. 4. Liquidation Protection and Debt Position Management Through a combination of on-chain and off-chain data, smarter liquidation protection strategies can be implemented. This ensures that debt positions are safeguarded during market volatility. 5. Design of Complex DeFi Structured Products In designing vault mechanisms, financial AI models can be used instead of fixed strategies. These models may include AI-managed trading, lending, or options, enhancing product intelligence and flexibility. IV. AI + GameFi AI in GameFi projects enhances the gaming experience and fosters innovation. Here are some primary focuses: 1. Game Strategy Optimization AI can learn players' habits and strategies to adjust game difficulty and tactics in real time, providing a more personalized and challenging experience. Through deep learning and reinforcement learning, AI can evolve to better suit players' needs and preferences. 2. Game Asset Management AI can help players manage and trade in-game virtual assets more effectively. Leveraging smart contracts and automated trading strategies, players can maximize the use of their assets, such as automatic buying, selling, renting, and lending game assets, thus optimizing investment returns. 3. Enhanced Game Interaction AI can create smarter and more responsive non-player characters (NPCs). Through natural language processing (NLP) and machine learning (ML) technologies, AI enables more natural and seamless interactions with players, enhancing immersion and satisfaction. Investment Strategies in Different Timeframes - In the short term, we should focus on areas where AI is first applied in crypto, such as conceptual AI applications and memes. Mainstream AI communities will continue to generate new hot topics, and major upgrades by companies like Nvidia and OpenAI will spark attention in the AI sector, attracting capital inflows. These can create excitement and drive momentum. - In the mid-term, the combination of AI agents with Intents and with smart contracts will garner traction. If successful, AI could extend smart contracts to create a new type of blockchain that integrates ledgers, contracts, and AI, moving beyond Ethereum's "ledger + contract". - Vitalik has highlighted AI agents as a promising area. AI agents are intelligent entities capable of autonomously acquiring and processing information, making decisions, executing actions, and altering the environment. This is a cutting-edge field within AI, closest to mass adoption at the application layer. - Metaphorically speaking, AI agents are like attractive and dynamic individuals, GPU cloud computing is a stable and mature entrepreneur, and AI models in the DA layer are disheveled scientists. - In the long term, the combination of AI and zkML technology, despite skepticism from ML experts in Web2 AI companies, will ultimately exert a significant impact on the crypto world. References: - Twitter: https://twitter.com/FinanceYF5/status/1772434625387717055 - Web3Caff: https://twitter.com/Web3Caff_Res - Twitter Vitalik: https://twitter.com/VitalikButerin — — — — — — — — — — — — — — — — — — About Us This article is a product of diligent work by the HTX Research Team that is currently under HTX Ventures. HTX Ventures, the global investment division of HTX, integrates investment, incubation, and research to identify the best and brightest teams worldwide. With a decade-long history as an industry pioneer, HTX Ventures excels at identifying cutting-edge technologies and emerging business models within the sector. To foster growth within the blockchain ecosystem, we provide comprehensive support to projects, including financing, resources, and strategic advice. HTX Ventures presently backs over 200 projects spanning multiple blockchain sectors, with select high-quality initiatives already trading on the HTX exchange. Furthermore, as one of the most vigorous Fund of Funds (FOF) investors, HTX Ventures collaboratively forges the blockchain ecosystem alongside premier global blockchain funds, including Bankless Ventures, Figment Capital, Gitcoin, IVC, and Animoca. Company Website https://www.htx.com/en-us/ventures Disclaimer 1. The author of this report and his organization do not have any relationship that affects the objectivity, independence, and fairness of the report with other third parties involved in this report. 2. The information and data cited in this report are from compliance channels. The sources of the information and data are considered reliable by the author, and necessary verifications have been made for their authenticity, accuracy and completeness, but the author makes no guarantee for their authenticity, accuracy or completeness. 3. The content of the report is for reference only, and the facts and opinions in the report do not constitute business, investment and other related recommendations. The author does not assume any responsibility for the losses caused by the use of the contents of this report, unless clearly stipulated by laws and regulations. Readers should not only make business and investment decisions based on this report, nor should they lose their ability to make independent judgments based on this report. 4. The information, opinions and inferences contained in this report only reflect the judgments of the researchers on the date of finalizing this report. In the future, based on industry changes and data and information updates, there is the possibility of updates of opinions and judgments. 5. The copyright of this report is only owned by HTX Ventures. If you need to quote the content of this report, please indicate the source. If you need a large amount of references, please inform in advance (see “About HTX Ventures” for contact information) and use it within the allowed scope. Under no circumstances shall this report be quoted, deleted or modified contrary to the original intent. Appendix: Decentralized Computing and AI Inference Platform Projects These projects leverage crypto incentives to globally share and utilize idle computing resources. AI Data and Model Source Projects These projects focus on data authenticity, transparency, and traceability, using crypto economic models to incentivize data contributions (for end users) and model enhancements (for developers and businesses). About HTX Ventures HTX Ventures, the global investment division of HTX, integrates investment, incubation, and research to identify the best and brightest teams worldwide. With a decade-long history as an industry pioneer, HTX Ventures excels at identifying cutting-edge technologies and emerging business models within the sector. To foster growth within the blockchain ecosystem, we provide comprehensive support to projects, including financing, resources, and strategic advice. HTX Ventures presently backs over 200 projects spanning multiple blockchain sectors, with select high-quality initiatives already trading on the HTX exchange. Furthermore, as one of the most vigorous Fund of Funds (FOF) investors, HTX Ventures collaboratively forges the blockchain ecosystem alongside premier global blockchain funds, including IVC, Shima, and Animoca. Contact Details Michael Wang glo-media@htx-inc.com Company Website https://www.htx.com/en-us/ventures
June 12, 2024 10:03 AM Eastern Daylight Time
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