Is this new AI chatbot for Crypto a game-changer?

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Since the launch of ChatGPT in November, the race has been on to find powerful new ways to integrate artificial intelligence (AI) into crypto trading and investing. This led to the appearance of the first ChatGPT-powered crypto trading bots late last year.

These crypto robots used computer code generated by ChatGPT to execute very specific crypto trading strategies.

Now, just six months later, ChatGPT has just been taken to a whole new level in the crypto world. There is a new experimental chatbot powered by ChatGPT for the Solana blockchain (SOL -1.68%) that specializes in decentralized finance (DeFi). This chatbot is more than happy to chat with you about DeFi, but its breakthrough value comes from its ability to interact within the Solana blockchain ecosystem using simple text prompts.

Crypto trading bots vs. DeFi bots

There is an important distinction between crypto trading bots and DeFi bots. Crypto trading bots are designed for cryptocurrency exchanges and are used to buy and sell crypto according to specific trading rules.

With ChatGPT, for example, you can create a Bitcoin (BTC -0.38%) trading bot that specializes in long-term investing using a very simple text prompt such as “Give me the computer code of a Bitcoin trading strategy that uses dollar-cost averaging (DCA).” Once you have the code, you can optimize it for several different variables, such as how often you plan to buy Bitcoin.

DeFi bots, on the other hand, do not buy and sell crypto on an exchange. Instead, they lock money in different DeFi protocols on a specific blockchain in order to earn financial rewards.

In very simple terms, a DeFi protocol is simply a self-executing computer program in the form of a smart contract for a particular blockchain ecosystem. So, for example, a crypto lending and borrowing protocol is a piece of code computer that describes how borrowers and lenders interact on a blockchain, including what the financial rewards will be.

Image source: Getty Images.

Putting it all together, the new Solana chatbot (called Omni) can help you understand and then participate in different DeFi protocols in order to earn financial rewards. All you have to do is use a natural language text prompt like you would with ChatGPT and then connect your digital blockchain wallet.

Risk factors

There are several risk factors associated with using these DeFi bots. For one thing, whenever you connect your blockchain wallet to a crypto bot platform, there will obviously be an element of risk. You might go to bed thinking you just invested in a highly profitable DeFi protocol and wake up the next morning to find that your blockchain wallet has been wiped out.

Remember all the problems the Celsius network faced during the crypto crash of 2022? Celsius was a crypto lender doing much the same thing marginFi, the creator of chatbot Solana, is doing now. It connected crypto lenders with crypto borrowers, offering very high rewards to those willing to deposit their funds. Celsius eventually filed for bankruptcy in July 2022.

So whenever I hear about crypto borrowing and lending, I get a little nervous. This can be a relatively high risk venture.

Additionally, as Omni very clearly states on its chatbot landing page, it is “highly experimental software” capable of producing “inaccurate results”. When I played with Omni it also seemed much slower than ChatGPT, often taking an excruciating 10 seconds to think of a response. I’m used to ChatGPT spitting out replies instantly. This could be due to the technology stack used by Omni – it uses two other different large language models in addition to ChatGPT.

The future of DeFi chatbots

The big picture is that the next generation of DeFi chatbots, if successful, could completely change the way we think about earning passive income in the crypto space.

The most popular form of passive income strategy right now is crypto staking, and it’s remarkably easy to do. On some cryptocurrency trading platforms, all it takes is a simple click, and you’re done. You don’t need an AI chatbot to do this for you.

But there are plenty of other passive income strategies in the crypto space, and some of them may be difficult to find, understand, evaluate, or execute if you’re an average investor. Examples of these strategies include yield farming, cash mining, and crypto lending.

These are all actions that an AI chatbot can be trained to understand and then perform more cost-effectively than humans. In your chatbot’s text prompt, you would simply include details such as the minimum and maximum returns you’re willing to consider, a few hints about your risk-reward profile, and any preferences you might have regarding relates to certain blockchains or protocols.

Again, there are a lot of risks with AI-powered chatbots, but the potential opportunities here are certainly intriguing. The “old” chatbots that just traded Bitcoins are now so 2022. The next generation of crypto chatbots will give you access to the entire world of DeFi using just a simple text prompt.

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