NLP in Crypto: Next-Gen Smart Contracts and UIs Come to DeFi

Now that our AI series has established a firm understanding of the potential power of combining blockchain technology with AI, we will dive one layer deeper and explore the important role of NLP in crypto and how next-generation UIs are transforming this revolutionary technology. 

In our deep dive into the future of finance, we unpacked the theory behind NLP and how it can improve algorithmic trading bots. While our introductory article gave a brief history of AI technology and where NLP fits. 

In this article, we will explore what Natural Language Processing is, how it works, and its significance for the future of decentralized finance. We will also look at current applications in modern AI chatbot interfaces, including their benefits and potential dangers.

How Does Natural Language Processing AI Work?

Natural Language Processing has been around since Joseph Weizenbaum’s Eliza first released what is widely considered the first early language model, Eliza, in 1966. Since then, NLP has made tremendous strides in processing and made a full resurgence in the early 2010s in mainstream products like Apple’s Siri, IBM’s Watson, and Amazon’s Alexa. So, what exactly is NLP, and how does it work?

Natural Language Processing leverages massive amounts of raw data input to analyze, tag, and index information before combining it into a coherent and predictive output. The process involves a series of steps that enable the creation of repetitive patterns to create reliable outputs. 

In plain English: NLP algorithms analyze large volumes of text, identify patterns, and generate structured outputs. These outputs can summarize, translate, classify, or even mimic the style of the original input, depending on the algorithm's purpose.

Think of your favorite writer’s style. NLP protocols can quickly analyze everything they have written, identify their favorite words, phrases, or sentence structures, and then recreate something in that exact style. That is why when you ask Alexa what temperature it is in your city or ChatGPT to write you a soliloquy in the style of Anthony Bourdain, it can quickly determine the command based on understanding what each word means in that sequence and call back to its inputs to create an accurate response. 

More Than Simplistic Virtual Assistants

Since AI exploded in popularity in late 2022, developers have been applying NLP to use cases far beyond simple the call-and-response ofl household assistants. For example, projects like OpenLaw are enhancing the potency of smart contracts through the easy deployment of legal agreements. Previously, this work was costly, time-consuming, and labor-intensive for only a small niche group of qualified lawyers who could work with and understand smart contract programming.

Other companies like Vector Space, traditionally a bioscience player, have found that their NLP algos can be applied to other industries with beneficial outcomes. Vector Space for example, has recently pivoted to offering their APIs for financial applications, claiming that through NLP, you can “uncover hidden relationships among stocks, cryptos, global events, and themes to protect and inform your investment portfolio.”

Bleeding-edge tech companies like Thought AI are trying to upgrade DeFi infrastructure by creating self-aware applications that eliminate the application layer and make self-executing data-driven decisions. These applications continually incorporate new information and learn from previous decisions to achieve the most effective trading outcomes.

The AI trend in DeFi is one of the most exciting areas in the industry. Traditional finance has already begun to embrace AI en masse, with Nvidia reporting that 46% of its financial customers have started using NLP in their organizations. Now imagine the potential with the immutable and decentralized power of blockchain technology in DeFi. This trend is not going away.

What You Need to Know, About No Knowledge Smart Contract Platforms

The crypto and AI industries were born out of a rebellious spirit like the one that motivated the early cypherpunks. This new era of no-knowledge smart contracts we are now entering, has the potential to achieve a degree of digital freedom that early activists could only dream of. Almost overnight, anyone from anywhere in the world with no experience can instantly create products and deploy dApps with nothing more than a simple chatbot interface.

Generative AI protocols like Midjourney, DALL-E, Runway, and AIVA produce stunning images, video, and audio outputs, empowering users to emulate their favorite artists in new and creative ways. These disruptive protocols show what advanced NLP can look like when applied to other mediums. Most of these leading AI protocols have established strict guardrails for acceptable outputs, restricting the use of these tools from being used for nefarious activities like curating political deepfakes or producing hyper-violent or exploitative content. 

These same UI chatbot interfaces have proven especially effective across DeFi protocols. Enabling non-programmers to enter the space through easy token creation and deployment chatbots. However, with that comes its own set of risks.

When mob mentality takes over

There is certainly a debate about censorship and who determines a model's weights and output restrictions across those generative AI protocols identified above. We have seen in our limitations to a technological revolution piece what happens when poisoned or disproportionately weighted models are released to the public. Yet, removing all limitations and guardrails creates its own set of issues. 

The world got a first-hand look at what happens when unbridled access to programming is combined with an incentive structure designed to incentivize sensationalism. The meteoric rise of the decentralized meme coin launchpad pump.fun since its release in January 2024 has led to the launch of over three million tokens by early November. This is an incredible evolution for token listings that previously had a knowledge barrier to entry—one that the cypherpunks would surely have loved to see.

However, when combined with the added feature of live listings where token creators could participate in directly marketing their projects, it quickly led to some of the most egregious and horrifying acts in the name of promoting some tokens' valuations. Suicide, bodily harm, pornography, animal cruelty, and gun violence, to name a few. The project has since removed the live feature indefinitely, but it remains a stark reminder of the potential negatives that can come with unrestricted technological innovation. 

The Double-edged Sword of AI Innovation

The roadmap for AI development was always going to be filled with bumps as fears of AGI and dystopian representations in the media grip the average citizen's attention. The pump.fun episode reaffirms all the worst fears of those believers and will certainly be used as an example by those who seek to reign in and restrict the advancement of AI innovation. Yet, as we have seen throughout history, aggressive overregulation can lead to the stifling of development.

What should give us hope is that beyond the noise, a strong signal comes from both the traditional and decentralized financial industries. Enhancing trading algorithms and internal efficiencies within these industries through the use of NLP will have many backers. This same NLP technology is being leveraged across multiple other industries and has laid the groundwork for advanced general-purpose and generative AI tools with quantifiable and far-reaching benefits. There are constantly new applications for NLP AI protocols. Where it goes next is anyone's guess.