Crypto thrives on fads. Each fresh technology – NFTs, SocialFi, metaverse tokens – sparks furious rallies, only to see them slump when reality bites. This year's craze has been "DeFAI": artificial-intelligence agents designed to navigate decentralized finance.

In January, names like Virtuals and Ai16z sent tokens soaring. At one point the market value of AI-agent coins neared $16bn. Eight months later, they have shed nearly a third of their worth, even as Wall Street hits records on the back of AI-infrastructure spending. To many observers, the episode looks like another bout of speculative self-delusion. Yet it may also be a prelude to something more lasting.

White-labelled and re-skinned

The first generation of DeFAI projects promised sweeping automation. Platforms such as Virtuals' G.A.M.E. or Ai16z's ElizaOS made it easier to spin up tokenized agents able, in theory, to trade, lend or invest on behalf of their owners. Launchpads like DAOS.fun dangled visions of decentralized hedge funds: investors would pool cash, agents would manage it, and profits would flow back to token holders.

The idea was exciting. For little more than a few clicks, one could dispatch tireless digital workers to scour markets and place bets round the clock. An April survey by CoinGecko found that half of respondents believed AI would outperform humans at trading; one in seven was willing to hand over their portfolio entirely.

Reality proved more prosaic. Most offerings turned out to be thin wrappers around generic large-language models. Grand roadmaps led mainly to chatbots on Telegram or Discord. Tokens collapsed by over 90% from their December peak, and many treasuries soon ran dry. As in past crypto busts, investors discovered that clever tokenomics could not make up for missing utility.

Agents of change

The second wave of projects has adopted a more modest, and arguably more promising, approach. Instead of "do-it-all" bots, they focus on specialized tools that can work together.

Wayfinder exemplifies the shift. Its agents handle specific on-chain tasks--from cross-chain swaps to more elaborate strategies such as leveraged dollar-cost averaging--using embedded wallets. The system resembles a hive, each agent focused on a narrow role but orchestrated towards a wider goal.

HeyAnon takes a retail-friendly tack. Users can instruct it by voice ("Sell 0.2 ETH on Coinbase") and it will carry out the trade. That lowers the technical barrier that keeps many newcomers from experimenting with DeFi.

Virtuals Protocol aims to build standards for agent-to-agent commerce. Its Agent Commerce Protocol (ACP) would let bots communicate and delegate, multiplying their capabilities. The vision is less of a solitary super-agent and more of an agentic members club: specialized, collaborative, and self-improving with experience.

The promise, and the pitfalls

The potential prize is worth fighting for. Bitwise, a crypto asset manager, reckons that blending AI and blockchain could add $20trn to global GDP by 2030. In the near term, advocates point to agent-to-agent commerce as the most enticing application. Imagine an investment agent hiring a data-analysis agent, which in turn consults a risk-model agent before deciding whether to place a trade--all continuously, cheaply and without human oversight.

Such visions raise thorny questions. How much autonomy should these bots wield? Who ensures they follow financial regulations? How can digital assets entrusted to them be safeguarded? Without credible standards of trust, security and compliance, DeFAI's latest iteration could go the way of its predecessors.

The take away

Crypto has heard this song before. Smart contracts were once dismissed as arcane playthings; decentralized exchanges as impenetrable. Both are now pillars of DeFi. Early manias often mask genuine breakthroughs, their utility revealed only after the froth subsides.

DeFAI's evolving story is scarcely eight months old. Act one was defined by overblown ambition; act two is more practical, with agents honing in on specific tasks and working in concert. Whether they evolve into reliable robo-managers or fade into the compost heap of past crypto fads will depend less on hype than on whether they can solve real problems at scale.

For now, DeFAI's flame is flickering. But it may yet kindle something more enduring.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.