🌵 The Intersection of Crypto & AI 🌵

Big Brain Breakdown

We’re chatting with Bankless tomorrow!

Let's face it, the past 72 hours have been quite sobering for the entire crypto industry, and as an extension, the AI sector.

As a result, it's fitting that we double down on that sobriety and have "the talk," which is why we are having @shaaa256 & @davewardonline from @BanklessHQ on an X Space to talk about The Bear Case for Crypto x AI 😱

Mark your calendars immediately, you are not going to miss this one 👇

This Thursday @ 6:00 pm EST - Set a reminder here

Market Metrics

Total Crypto Market Cap: up 3.8% to $2.11T
Total AI Sector Market Cap: up 11.7% to $20.9B

Top Movers (24hrs):

📈Lumerin (LMR): up 28.5% to $0.02182
📈LimeWire (LMWR): up 21.9% to $0.2453
📈GraphLinq (GLQ): up 18.2% to $0.04852

Daily News

🟠 Lumerin announced that its Morpheus full node is now in testnet and the team will onboard Venice.AI before launching to mainnet. The coin is up 28.5% on the news.

🟠 Ayeeeandy dropped a complete list of EigenLayer AVS’. A few of them are AI and DePIN-focused, namely Parasail Network, OpenLedger, Witness Chain, and Quill.

🟠 563defi released a list of the 12 new Bittensor Subnets that have registered over the past couple of months. If you are curious about Bittensor, this is definitely worth checking out.

🟠 Spectral released a demo showcasing its custom AI agent builder, and it’s pretty sweet.

🧠 Big Brain Breakdown

It’s been a brutal week in the markets, so we thought it was time to take a step back and assess the current situation in the DeAI space. Holding assets through brutal +50% drops without emotion requires conviction, and conviction comes from deeply understanding both sides of the coin.

We’ve put together some of the most significant Tailwinds and Headwinds for the Crypto x AI sector to paint the full picture so that you can develop your own conviction in whatever you believe is the direction for this nascent sector of crypto.

Tailwinds:

Growing concerns about the centralization of AI

As concerns grow over the concentration of AI power and resources in the hands of a few large tech companies, there's increasing demand for more equitable access to the necessary resources for AI development, such as compute and data. This shift in sentiment favors decentralized systems, which offer equal access and allow for greater participation in AI development. The inherent transparency of blockchain-based systems also appeals to those seeking more accountable and auditable AI processes, addressing the current "black box" nature of many AI algorithms.

The reality is that no one really wants a big tech corporation to know every single minute detail about you, so DeAI is the only real option for unlocking personal AI. As users become more aware of how their personal information is used in AI training and decision-making, decentralized AI (DeAI) offers a way out.

Open-source adoption growth

The accelerating adoption of open-source ethos in the AI sector, exemplified by Meta's release of Llama 3.1 405b, aligns powerfully with crypto's core principles of transparency and permissionless innovation. This trend starkly contrasts with the closed-source approach of incumbents like OpenAI, Anthropic, and Perplexity, who develop and gatekeep their technologies internally.

Open-sourcing not only democratizes access to cutting-edge AI, but also enables faster iteration through broader community involvement. This shift is likely to create a significant competitive advantage for open-source projects, as they benefit from quicker feedback loops and collaborative improvement, potentially outpacing their closed-source counterparts in innovation and adaptability.

Demand for AI integrations

We are seeing many projects integrate AI in varying capacities, from simple co-pilots that allow users to source information from project documentation to large-scale pivots that place AI at the nucleus of product strategy. Our conversations with teams building across DePIN, DeFi, CeFi, and SocialFi reveal a common thread: all are actively determining the best way to integrate AI into their offerings.

The bottom line is clear: projects universally understand that AI integration is crucial. Whether to sharpen user experiences or differentiate product offerings, AI has become essential for retaining user bases and building more compelling narratives around their products.

New use cases emerging

We are currently experiencing the early stages of theorized AI use cases becoming reality in the crypto space. For instance, Spectral recently launched an impressive product demo showcasing how users can build AI agents to conduct specific trading activities based on written instructions. Their latest demo features a bot that automatically shorts ETH when the timeline posts bullish ETH/BTC charts, built using their upcoming Syntax V2 platform.

This example is just the beginning. We anticipate a surge in projects experimenting with novel use cases and releasing tangible products and solutions that leverage AI capabilities.

Sustained seed investments

While fundraising for early-stage crypto projects isn't as explosive as during the last bull market, it has remained consistent over the past 9 months, with AI-focused projects attracting significant investment. July alone saw an impressive $180 million raised across various AI initiatives.

Headwinds:

Election and regulatory uncertainty

As the US presidential election approaches, concerns persist about how candidates will address and nurture AI development in the United States. Both major parties have touched on the subject, but their stances differ significantly. Democrats generally advocate for stricter regulation of AI to ensure responsible innovation and protect worker rights. In contrast, Republicans tend to prioritize technological advancement with minimal government intervention.

Evidence from recent policy proposals and campaign statements highlights these divergent approaches. With no clear consensus in sight, it remains uncertain how the next administration will shape the future of AI in the US, the current epicenter of AI development.

PMF & real usage challenges

The viability of recent crypto-AI hybrid products has sparked contentious debates within the industry. Many emerging projects face the glaring question: "What problem does this actually solve?" The rush to place AI capabilities onchain often seems forced, raising doubts about the necessity and practicality of such integrations.

Moreover, concerns about real usage plague not just these niche AI products, but also the underlying blockchain networks themselves. The practice of using unique wallet addresses as a proxy for user adoption is fundamentally flawed and misleading. This metric inflation undermines credibility and hinders genuine assessment of product-market fit. As the sector matures, it's crucial to develop more meaningful metrics that accurately reflect true user engagement and value creation.

Macro & AI bubble concerns

The AI sector has experienced explosive growth, outpacing crypto and driving major stock indexes to new heights. AI stocks have propelled the S&P 500 and Nasdaq to record levels, fueled by increased demand for compute power and significant capital expenditure. This rapid expansion has led to signs of overvaluation, with the Buffett Indicator reaching a modern-era high of 195%, suggesting investors are pricing in decades of future growth.

However, this unprecedented growth has raised concerns about an unsustainable bubble. Recent market shifts, such as the rotation from mega-cap tech to small caps, signal potential instability. The AI bubble's potential burst could have far-reaching economic implications, impacting perceived wealth and consumer spending. This trend highlights the double-edged nature of AI's market influence: while driving unprecedented growth, it also raises significant concerns about market stability and long-term sustainability.

Talent competition intensifying

Attracting developers to niche crypto ecosystems is already challenging due to numerous barriers to entry. For example, Solana developers must be proficient in Rust and possess other specialized skills. Building AI applications within this crypto niche compounds the difficulty, requiring expertise not only in blockchain technology but also in machine learning, data science, and AI model development.

This rare combination of skills is highly sought after, placing crypto AI projects in direct competition with the centralized AI industry. With the latter offering extremely competitive compensation packages backed by billions in funding, crypto AI initiatives are vying for a very small pool of qualified individuals.

Meme of the Day

We’re back alright 😮‍💨