Intelligent DeFi: A New Paradigm in Decentralized Finance

Felix
Pinkston

Sep
18,
2024
07:45

EigenLayer
introduces
Intelligent
DeFi,
leveraging
offchain
compute
and
data
to
enhance
decentralized
finance
with
verifiable,
trustless
services.

EigenLayer,
a
leading
player
in
the
blockchain
space,
has
introduced
a
new
paradigm
in
decentralized
finance
(DeFi)
known
as
Intelligent
DeFi.
This
innovative
approach
leverages
offchain
compute
and
data
to
enhance
the
capabilities
of
DeFi,
according
to
the

EigenLayer
Blog.

Ethereum’s
Role
in
DeFi

Ethereum
has
been
a
significant
catalyst
for
the
DeFi
movement,
starting
with
the
launch
of
Maker
in
December
2017.
Platforms
like
Uniswap
and
Compound
soon
followed,
creating
an
economy
around
ETH
and
ERC20
tokens.
This
period
saw
the
emergence
of
concentrated
liquidity,
the
evolution
of
perpetual
contracts,
and
the
invention
of
flash
loans,
which
are
impossible
in
traditional
finance.

However,
the
Ethereum
ecosystem
has
faced
challenges.
Automated
Market
Maker
(AMM)
Liquidity
Providers
(LPs)
have
lost
over
$700
million
due
to
Miner
Extractable
Value
(MEV)
since
The
Merge.
Additionally,
derivative
exchanges
have
centralized
their
risk
engines
and
order
books
for
efficiency,
and
personalized
loans
remain
elusive
due
to
Ethereum’s
limitations
as
a
finite
state
machine.

The
Need
for
Modular
Architectures

Many
of
these
issues
stem
from
Ethereum’s
constraints,
such
as
gas
limits,
12-second
block
times,
and
the
inability
to
natively
integrate
offchain
data.
Modular
architectures
offer
a
solution
by
offloading
heavy
computation
and
integrating
external
data
without
compromising
Ethereum’s
core
security.

If
the
Ethereum
Virtual
Machine
(EVM)
is
the
glue
that
allows
developers
to
write
arbitrary
business
logic,
the
question
arises:
what
should
the
coprocessors
look
like?
According
to
Vitalik
Buterin,
these
coprocessors
could
be
precompiles
or
opcodes.
However,
a
broader
solution
is
needed—coprocessors
that
can
handle
computationally
expensive
tasks
while
ensuring
verifiability.

Introducing
Actively
Validated
Services
(AVSs)

EigenLayer
introduces
Actively
Validated
Services
(AVSs),
decentralized
networks
of
node
operators
aligned
economically
to
run
arbitrary
node
software.
AVSs
drastically
reduce
the
cost
of
building
verifiable,
trustless
services.

The
intersection
of
DeFi
and
AVSs
unlocks
a
range
of
powerful
new
use
cases:

• 
  Trustless
  offchain
  compute:
  Run
  heavy
  computations
  offchain
  and
  return
  results
  onchain
  with
  minimal
  gas
  fees,
  secured
  by
  zero-knowledge
  proofs
  or
  cryptoeconomic
  guarantees.
• 
  Trustless
  offchain
  data:
  Securely
  pull
  real-world
  data
  like
  prices
  and
  liquidity
  into
  DeFi.
• 
  Beyond:
  Enable
  auction
  networks,
  policy
  layers,
  and
  decentralized
  order
  books.

Use
Cases
of
Intelligent
DeFi

Intelligent
DeFi
brings
real-time
adaptability
and
personalization
to
decentralized
finance.
Here
are
some
key
use
cases:

1.
VIP
Tier:
Volume-Based
Fee
Tiers

Centralized
exchanges
offer
tiered
fees
based
on
volume
to
subsidize
market
makers.
Implementing
similar
volume-based
fees
on
a
DEX
is
challenging
due
to
the
need
for
dynamic
computation
and
storage.
By
outsourcing
computation
to
a
coprocessor,
traders’
volumes
can
be
verifiably
computed
for
every
transaction.

2.
Dynamic,
Asymmetric
Fees
for
AMMs

AMMs
can
introduce
dynamic
and
asymmetric
fees
to
improve
LP
profitability.
Dynamic
fees
adjust
based
on
market
volatility,
while
asymmetric
fees
reflect
more
realistic
market
conditions.
Trusted
external
data
is
crucial
for
this,
and
zkTLS
(web
proofs)
offers
a
tamper-proof
solution.

3.
Auction
to
Redistribute
MEV
to
AMM
LPs

AMMs
can
auction
off
the
right
to
be
the
first
swap
through
the
pool,
recapturing
LVR
and
distributing
it
to
LPs.
A
decentralized
set
of
operators
can
run
a
low-latency,
censorship-resistant
auction,
preserving
the
integrity
of
the
process.

4.
Advanced
Margin
System

Leveraging
coprocessors
for
complex
calculations
can
create
a
more
customized
risk
engine
for
DEXs,
enabling
more
flexible
strategies
and
ensuring
necessary
liquidations.

5.
Pricing
an
Options
AMM

For
options
AMMs
to
succeed,
integrating
offchain
data
and
compute
for
advanced
pricing
frameworks
is
crucial.
This
ensures
accurate
pricing,
lower
slippage,
and
better
capital
efficiency.

6.
AI
System
for
Parameters

AI-driven
models
can
update
lending
protocol
parameters
in
real-time,
predicting
and
preventing
worst-case
outcomes.
This
approach
minimizes
delays
and
enhances
governance.

7.
Personalized
Loans
via
Account
History
and
Liquidation
Risk

DeFi
lending
protocols
can
offer
personalized
loans
by
assessing
onchain
information
and
leveraging
coprocessors
to
generate
custom
collateral
factors
and
interest
rates.

The
convergence
of
DeFi
and
AVSs
is
set
to
revolutionize
the
financial
landscape.
From
MEV-recapturing
AMMs
to
real-time
policy
compliance,
the
potential
applications
of
Intelligent
DeFi
are
vast
and
transformative.

Image
source:
Shutterstock