I know it’s a tough ask, but if you look past the blatant rugs and insider scams that have been rampant in the industry over the past few months, some genuine tech is still being built that has the fundamental potential to make a difference.
It may not look like it now, but the building blocks are being put in place.
Take DeFi, for example. In 2021, it was the talk of the town, with everyone trying to get a piece of the pie. Even though it may not be in the spotlight to the same extent anymore, core DeFi products now make up foundational elements of on-chain infrastructure.
Native decentralized exchanges (DEXes), cross-chain bridges, lending markets, and so on are still pivotal pieces of crypto infrastructure that were born out of the DeFi boom. The only thing that’s no more is the 18329740973890465% APY ponzi yield farms.
Yes, this image is real.
A sector that’s in a similar stage right now is the AI x Crypto sector.
For the latter half of 2024, it was quite easily the hottest sector in the industry. It reached the point where every single project started doing its best to twist its narratives to fit within the AI sector.
With the recent market correction, all these new AI agents and AI framework projects have seen a major correction. The sector as a whole is down close to 70-80%, with the majority of projects completely going to zero since they turned out to be late-stage extractive vaporware.
Just because things look bleak right now doesn’t mean that it’s over.
The intersection of crypto and AI will lead to the creation of some very important technological components that will ultimately become core pieces of the industry's infrastructure.
One of the biggest sub-sectors within this broader AI sector will be DeFAI.
What is DeFAI?
Well, the name kinda gives it away.
DeFAI is the use of AI products to enhance the DeFi/on-chain user experience. To give you a clearer picture, let me run you through examples of what DeFAI products would look like.
Tasks like making a swap on a DEX, providing liquidity into a pool, transferring assets across chains, or setting limit orders on a coin you like are almost second nature to the average degen.
However, navigating crypto can be difficult for newcomers simply due to the vast number of protocols that exist and the landmines they bring alongside.
Now, with AI, you can simply make a DeFAI agent to simplify and automate various on-chain tasks.
For example, a user can simply message a DeFAI agent integrated with a wallet and say, “Swap $1k USDT for ETH at $2500”. The agent automatically places this order on a DEX that offers the best execution, and voila, the trade is executed.
This concept can be further expanded for things like risk management and yield strategies.
Smart AI systems can constantly adapt to new data and identify potential risks in the DeFi world, allowing you to stay protected.
There can be an automated AI trading bot that analyzes market trends and general sentiment and then executes trades for you.
Similar AI systems can also be created to develop yield strategies or even analyze fraud risks to ensure you don’t get rugged, drained, or scammed by bundled coins.
The possibilities are endless here, but I think you get the gist: Making AI tools that enhance the DeFi user experience.
DeFAI sector overview
The sector as a whole is currently very small. At the time of writing, its total market cap is just under $900M.
Currently, Solana and Base dominate this sector. DeFAI projects on these two chains account for 86.5% of the total market cap of the DeFAI sector.
Within the DeFAI sector, there’s a variety of popular product categories:
- Research
- Trading
- Yield optimization
- Wallet/portfolio management
- LLM integration
Research agents
A research product under DeFAI typically refers to an AI agent that scrapes various sources of information. This means on-chain data, social media, and general research across the internet.
These agents then compile all of this information into bite-sized bits of content, simplifying the research process for users. Those who actively research crypto know how difficult it is to find reliable information among the plethora of existing sources.
Trading agents
Trading is quite easily the most popular use case in crypto. However, trading on-chain can often be a bit of a minefield.
Navigating across different chains and different DEXs to find the most liquid pools and then avoiding things like MEV can be difficult for the average Joe. Having a trading agent to whom you simply communicate what action you would like to execute and have the agent do the execution for you is a major step up in terms of user experience.
This will be a particularly popular product iteration amongst newer crypto participants.
Yield optimization
Yield products are a major part of the on-chain economy. Contrary to popular belief, there are still very profitable yield opportunities across the ecosystem; you just need to know how to find them.
For the experienced DeFi degen, this is a doable task. However, most people will struggle to be profitable through yield farming consistently.
Fortunately, DeFAI agents can focus on yield optimization. This agent will scour the landscape and find the most effective and profitable yield strategies for you. You can also have the option to specify your preferences, goals, and risk tolerance to the DeFAI agent, and it’ll manage it all for you.
Wallet/portfolio management
When interacting with the on-chain economy, your wallet is essentially your portfolio and your bank account.
Typically, a regular user has multiple wallets. Some people have 4-5 wallets, while others have thousands of wallets that they manage. Having a DeFAI agent or interface designed to simplify the management of all your wallets is almost a necessity at this point.
Through AI, your portfolio management can be streamlined and compiled under one interface. Furthermore, the AI agent can rebalance your portfolio according to your preferences and execute preset trades for you while you're asleep.
It’s basically having an automated personal portfolio manager 24/7.
LLM integrations
LLMs are currently the most popular AI product in the market.
Imagine an LLM that’s connected to your wallet. You simply have your funds in your wallet, and to do anything on-chain, you just have to chat with the LLM.
For example, you have 100 USDC on ETH and want to buy something on Sonic. If a wallet has an integrated DeFAI LLM, you just say, “Bridge my 100 USDC to S on Sonic at the current market price.” In the background, the agent will execute based on your request to the LLM.
What’s better is that the LLM can then also be used for fraud/rug protection, general research, and all the other aforementioned DeFi tasks, like trading or yield optimization.
Can Sonic be the home of DeFAI?
So, now that you understand the DeFAI landscape, it’s time to understand why Sonic could be the home of this emerging sector.
There are a couple of reasons why Sonic is likely to be the home of DeFAI:
- Smooth user experience
- Developer rewards
- Strong treasury and foundation support
- Experienced team
The Sonic user experience
Sonic went live on December 18, 2024. If you aren’t familiar with Sonic's underlying technology, I recommend checking out our complete guide.
As one of the early bridgers to the chain, I can say that I was pleasantly surprised with the experience.
If you’re an active trench warrior, then you know how these new chain launches go. It takes a long time to bridge, and then once your funds arrive, you are scrambling to find a good coin to buy. Once you do find a coin, you encounter multiple failed transactions because the entire network is clogged.
With Sonic, the experience was quite the opposite. It was super smooth throughout — rapid transaction executions for super cheap costs and no network jam issues.
A smooth user experience combined with EVM compatibility will allow an application ecosystem to flourish on Sonic. The network offers sub-second finality while processing 10,000 transactions per second, and the gas cost is expected to be around $0.01.
Whether it be a DeFi project, an NFT project, or a gaming project, they can all flourish with large user bases on Sonic without worrying about network clogging. On the back of this, DeFAI products can simply take things to the next level.
The scalable infrastructure creates a large product ecosystem that attracts a large user base. This user base, in turn, can take advantage of DeFAI products that will automate and simplify a lot of the typical on-chain tasks that the users would otherwise do manually.
Developer rewards
Crypto is a game of incentives.
Just as the smooth user experience and EVM compatibility are good enough incentives for users, the fee reward program is a great incentive for developers.
The idea is simple: 90% of the gas fees generated by a certain protocol will be distributed back to the protocol through the FeeM program. The more money you bring into the chain, the more money you get back. It's a pretty simple incentive structure.
So what does this do?
For starters, it eliminates the need for short-term incentive games, which are often unsustainable and ultimately kill projects. Developers have a clear path to stable revenue and are incentivized to make high-quality, sustainable protocols.
For DeFAI products, this is a game changer.
DeFAI products will be the most consumer-facing products since they are designed to use AI to make the crypto user experience easier for everyone.
As a result of this reward program, there will be more high-quality projects on Sonic, which will increase the number of users on the chain. More users on the chain means more users of DeFAI products, which means more money for the developers of the DeFAI products.
The name of the game then just comes down to who can create the best DeFAI product on Sonic and capture the most mindshare. Castles on private islands will be on the menu.
Treasury and foundation support
For those who were around in the most recent bear market, you may remember this blog post.
This is the post where Andre Cronje, founder of Sonic (Formerly Fantom), essentially went over the business side of the Fantom foundation. Long story short, they showed that they have a liquid runway of roughly 30 years. This has likely increased.
This strong treasury backing puts Sonic in a very unique position relative to its competitors.
This means that the Sonic Foundation can invest more resources in incubating and growing high-quality projects within its ecosystem. DeFAI will be a major benefactor of this initiative.
The Sonic Foundation has made its DeFAI ambitions very clear with the announcement of its DeFAI hackathon.
The total prize pool is $295k, and the hackathon is in partnership with Zerebro and DeBridge. The last date for submissions is February 24, 2025.
This is just one example of how a stacked treasury can help. The foundation can create incentive programs, ecosystem grants, or help with partnerships to further help grow the DeFAI sector on Sonic.
Experienced team
Lastly, there is the Sonic team, which is absolutely stacked.
Let’s start with the CTO and an OG in the DeFi space, Andre Cronje. He is well-known in the industry for his technical prowess and for crafting sophisticated financial primitives on-chain.
With him at the helm, you can be assured that some top-notch projects will be built on the network.
The CEO, Michael Kong, is also an industry OG. He has been working in and around blockchains and crypto rails since 2015. All of this experience creates the perfect backdrop for facilitating the creation of a flourishing on-chain ecosystem.
Another notable member of the team is the head of research, Professor Bernhard Scholz. For those of you who don’t know, he’s a very well-respected computer science professor and has been cited by a bunch of major journals. With him at the helm of research, you can be assured that from a technological perspective, everything will be top-tier.
These are just a few of the names on the stacked Sonic roster, but I think you get the picture.
With such a strong team, you know that the chain's future and ecosystem are in good hands. They will ensure that high-quality projects are supported and allowed to thrive. So, how does that relate to DeFAI?
Well, with a flourishing ecosystem, DeFAI products are provided with the perfect baseplate on which various products can be offered.
A fast and cheap chain with a high-quality product ecosystem that has the user experience further enhanced by DeFAI products? Yeah, sounds like a match made in heaven to me.
Current Sonic DeFAI landscape
Currently, the Sonic DeFAI landscape is limited. The main DeFAI project on Sonic is HeyAnon. But there will be a lot more coming after the hackathon.
HeyAnon
Some of you 2021 degens might remember Daniele Sesta, the TIME, SPELL, and ICE trifecta. Yeah, it was a fun time.
But now he’s back, and he’s back to create a next-level DeFAI project launched on Sonic. Regardless of the bad press around him and what you may think of him, it is hard to deny that he is a good builder.
HeyAnon is a full-suite DeFAI product.
Through HeyAnon, users will be able to execute trades, get real-time crypto news, manage their portfolio, conduct research, and participate in DeFi across all major chains in one place.
AI will automate the entire thing and create a seamless user experience for the end user.
Once live, this product will completely change the DeFi landscape. It will offer users a one-stop AI-powered shop for everything crypto, and it will be launched on Sonic.
Sonic DeFAI hackathon
HeyAnon is just the tip of the iceberg when it comes to DeFAI on Sonic.
As we mentioned earlier, a big hackathon with a prize pool of $295k is going on.
The entire idea behind the hackathon is to explore all the synergies between crypto and AI. The aim is to find transformative technology that massively elevates the user experience or infrastructure.
Application submissions were opened on January 21, 2025, and will close on February 24, 2025. Winners will be selected and announced in early March.
The hackathon winners will receive $60k, the runner-up $55k, and the third-place winner $45k. Additional prizes include $15k each to two honorable mentions and bonus awards for winners in different categories.
These include:
- Social agent
- DeFAI agent
- Tooling agent
- Best DeBridge integration
- Best Allora agent
- DWF Labs sponsored track
So, if you’re a dev working in AI x Crypto, I recommend getting yourself active in this hackathon now. All details on submissions can be found here.
Those who win will have help from some of the best and brightest minds in this industry to elevate their product and ultimately take it to market through Sonic with some additional marketing and promotional help from the team. The magnitude of the opportunity cannot be understated here.
After this concludes, you can be assured that the AI, and specifically the DeFAI sector, is going to boom on Sonic. So yeah, exciting times ahead, to say the least.
Concluding thoughts
Sonic is still in its early days.
If you have been paying attention to their socials, you’d know that they are doing the right thing and playing the long-term game. They are focused on carefully crafting a sustainable ecosystem.
Yes, DeFAI will be a major part of this and a major step in the right direction, but DeFAI will just be one piece of the Sonic puzzle. There’s a lot more coming to the network, and if I were you, I’d think twice before fading them.
The train only heads in one direction for Sonic, and that direction is forward.
