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Breaking down Ethereum’s evolution and its impact on crypto markets

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As of December 6, 2022 @ 22:49:49 UTC.

Welcome to Valid Points. In today's issue, Sam Kessler has an inside scoop on what OpenAI's ChatGPT thinks about the relationship between AI and DeFi. For an extended version of this article, view the web post here.

We offered the following prompt to ChatGPT: "Write a CoinDesk article about how AI might be used in decentralized finance." The bot returned six paragraphs. We've included the first five paragraphs verbatim.

We replaced the AI's concluding paragraph with its response to our follow-up prompt: "include risks as well as benefits." This yielded three paragraphs, which we again recorded verbatim.

Response by ChatGPT

As decentralized finance continues to grow in popularity, many are looking to artificial intelligence (AI) as a potential solution to some of the challenges facing this emerging technology.

Decentralized finance, or DeFi, refers to a system of financial transactions that are performed on a blockchain network. This allows for the creation of digital assets and the creation of smart contracts, which enable the execution of financial transactions without the need for intermediaries such as banks or other financial institutions.

One potential use case for AI in DeFi is the creation of more sophisticated and intelligent trading algorithms. These algorithms could be used to analyze market trends and make more accurate predictions about the direction of asset prices, helping traders to make more informed investment decisions.

Another potential application of AI in DeFi is in the creation of more advanced and efficient lending and borrowing platforms. By using AI algorithms, these platforms could automatically assess the creditworthiness of borrowers and set appropriate interest rates, reducing the risk of defaults and making the lending process more efficient.

Additionally, AI could be used in DeFi to improve the security of smart contracts and other blockchain-based financial transactions. By using machine learning algorithms, smart contracts could be automatically monitored and audited for potential vulnerabilities, helping to prevent hacks and other security breaches.

However, there are also potential risks associated with the use of AI in DeFi. One concern is that the use of AI algorithms in trading and lending could lead to the creation of "black box" systems that are difficult to understand and regulate. This could make it difficult for regulators to monitor and control these systems, and could also create potential risks for investors and borrowers.

Another potential risk is that AI algorithms could be subject to bias or manipulation, leading to unfair or inaccurate decision-making. For example, if AI algorithms are trained on biased or incomplete data, they could make decisions that are unfair or discriminatory. This could be particularly problematic in the context of lending and credit scoring, where the use of biased algorithms could lead to discrimination against certain groups of borrowers.

Overall, while the use of AI in DeFi has the potential to bring significant benefits, it is important for developers and regulators to carefully consider and address these potential risks. By taking a cautious and responsible approach, it may be possible to harness the power of AI to improve the capabilities of decentralized finance without creating unintended consequences.

Human here again

Pretty good, huh? It took some trial and error at the beginning, but once we crafted the magic prompt, ChatGPT managed to string together a relatively convincing (albeit dry) argument for how AI might be used in DeFi.

That being said, we’re not sure ChatGPT is ready to take over this newsletter just yet. The bot sounds human, but it’ll frequently manufacture facts out of thin air, and we had to weed through some pretty weird responses before landing on something fit to print (ask us about the time it wrote – incorrectly, for reasons that probably don’t need explaining – that “Alameda Research is a quantitative trading firm that uses AI to make fast and accurate trades on decentralized exchanges”).

If you are interested in reading a human take on how AI intersects with DeFi, CoinDesk has you covered. While ChatGPT covered a lot of ground in its article, it did miss some key applications, such as insurance and key risks, including how on-chain AI could be used to manipulate markets or harm users through malicious MEV strategies.

Our journalism jobs are still safe, but one imagines that it won’t be long before ChatGPT is explaining – maybe with a bit more color next time – not only how AI could transform DeFi, but how it already has.

Celsius Network LLC, et al., have established bar dates for submitting proofs of claim. Persons and entities that agree with their claim as listed in the Schedules [Docket No. 974] need not submit a proof of claim. Otherwise, all persons and entities that assert a claim against Celsius Network LLC and its affiliates must submit a proof of claim before the applicable bar dates outlined in the Bar Date Notice [Docket No. 1368-1].

Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.

Ether turns back to being inflationary.

WHY IT MATTERS: Data from ultrasound.money shows ether’s net issuance or annualized inflation rate has risen to 0.07%, after previously dropping below zero amid market volatility linked to FTX’s collapse. Nick Hotz, vice president of research at digital-asset management firm Arca, attributed ETH becoming inflationary to a lack of network activity that led to reduced demand. Read more here.

East African bitcoin miner Gridless raises $2 million in a seed funding round.

WHY IT MATTERS: Gridless, a bitcoin mining company that helps generate new sources of energy in rural communities in East Africa, said Tuesday that it secured $2 million in a seed investment round led by bitcoin venture-capital firm Stillmark and payments company Block, a firm that is led by Twitter co-founder Jack Dorsey. Gridless designs, builds and operates bitcoin mining sites alongside small-scale renewable energy producers in rural Africa where excess energy is often left unused. Read more here.

Chainlink launches staking.

WHY IT MATTERS: Chainlink, a provider of price feeds and other data to blockchains, has introduced staking of its native token LINK to its network to help keep the protocol secure. Staking is setting the foundation for what the company calls Economics 2.0, its vision for the protocol to scale and become more efficient by providing the right incentives, Chainlink co-founder Sergey Nazarov said. Read more here.

Factoid of the Week

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Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

December 7, 2022

The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on ETH metrics.