Decentralized AI trading is one application of AI that hasn’t quite become mainstream in crypto. This presents an excellent opportunity to profit from being a pioneer user. However, it doesn’t come without risks.
So, in this article, we’ll be covering decentralized AI Trading. But to understand it comprehensively, we need to start by explaining the basics of artificial intelligence. Let’s begin.
What is Artificial Intelligence?
Artificial Intelligence, AI, refers to computer systems or machines that can replicate human intelligence processes to achieve set goals.
It involves the development of machines or virtual robots that can perform complex tasks just as a human would. These tasks include learning, reasoning, problem-solving, perception, speech recognition, and language understanding.
Even though AI has recently become a trending topic, it’s been in development and use since as far back as the 50s. Google, for instance, has been using AI for almost 20 years to bring you search results that answer your curiosities.
Aside from search engines, AI has applications in several fields ranging from healthcare to security, education, agriculture, and finance, which we’ll emphasize in this article.
Types of AI
AI has several applications. We see AI everywhere, from your phone’s facial recognition features to advanced natural language processing and sentiment analysis like ChatGPT and AI trading bots.
However, as you may have noticed, AI technology varies. It is, thus, broadly classified into weak or narrow AI and strong or general AI based on function.
- Narrow/Weak AI: This type of AI is designed to perform a specific or limited set of tasks. Examples include voice assistants like Siri or Alexa, image recognition software, and recommendation systems.
- General/Strong AI: This is a more advanced form of AI that can understand, learn, and apply knowledge across a broad range of tasks at a human-like level. To a large extent, they can solve complex problems and respond to situations like humans would. A perfect example would be ChatGPT.
AI can also be categorized into Machine Learning, Deep Learning, and Natural Language Processing.
- Machine Learning (ML): ML is a subset of artificial intelligence that involves using algorithms and statistical models to enable systems to improve their performance on a task through experience.
- Deep Learning: A subfield of machine learning that involves neural networks with many layers (deep neural networks). It has been particularly successful in tasks like image and speech recognition. Trading bots like Crypticorn base their predictive analysis on this technology.
- Natural Language Processing (NLP): A branch of AI that focuses on the interaction between computers and humans through natural language. It enables machines to understand, interpret, and generate human language.
Current Use Cases of AI
As aforementioned, AI is used in several industries such as healthcare, education, retail, autonomous vehicles, finance, and others,
In healthcare, for instance, AI is used to analyze medical imagery such as X-rays, MRIs, and CT scans in order for proper diagnosis and treatment. It’s also being used in personalized healthcare as several medical chatbots help patients get tailored prescriptions for their predicaments.
This same technology is used in other industries, of which finance is a significant part.
AI and Trading
AI trading bots are a craze in the financial world today. Both in the centralized and decentralized markets, these computerized systems enable seamless, automated trading experiences.
And this is just one use case of AI in trading. AI can also be used for financial analysis and trading recommendations. Advanced algorithms with preprogrammed fundamental and technical analysis tools make for virtual experts who can determine whether a company’s stock or a specific cryptocurrency is worth investing in.
This leads us, finally, to decentralized AI trading.
What is Decentralized AI trading?
Decentralized AI trading is a relatively new form of crypto trading that uses virtual robots or computer programs called AI trading bots to buy and sell cryptocurrencies on decentralized exchanges (DEXes). It is an automated process that involves artificial intelligence systems plotting/generating reasonable entry and exit points and then executing a trade with the aim of making profit.
One important thing to note is that decentralized AI trading is done on decentralized exchanges like UniSwap rather than centralized ones like Binance. So, AI bots basically help you trade without your supervision enabling you to make passive profits.
Decentralized AI trading is possible because of the advanced deep learning these AI bots are programmed with. It’s called reinforcement learning, a branch of deep learning that involves training the AI to make trading decisions that are most likely to generate profits through a reward and punishment system.
That is, they reward the AI for making trades with a profitable strategy and caution it when it uses a bad strategy. This enables it to make good decisions over time.
Let’s talk more about the technology behind this AI innovation.
What is Decentralized AI?
It’s important to know that decentralized AI (DAI) is different from decentralized AI trading. Decentralized AI trading is just one use case of DAI. Let’s explain.
Decentralized AI, abbreviated as DAI, involves the distribution of the computational and decision-making processes of artificial intelligence distributed across a network of nodes or devices (e.g., PCs, smartphones, etc).
Typical centralized AI systems utilize one singular server or cloud to compute data. This not only makes your data less private but is also quite risky, as the functionality of the AI system depends on just one server, which could fail at any point.
Crypto decentralized AI, on the other hand, leverages the collective power of nodes, that is, multiple individual computers that act as servers. This process ensures increased privacy and scalability, among others.
Moreover, in DAI, each node contributes its computational resources, including processing power and data, to collectively train models and make predictions. This collaborative approach enables the development of intelligent systems that operate decentralized, peer-to-peer, avoiding reliance on a single point of failure.
Basically, DAI is an AI that distributes its algorithmic operations and decision-making across a network rather than one single hub, enhancing efficiency, privacy, and resilience.
And this is perfect for decentralized trading.
How is AI Used in Decentralized Trading
AI can be used in a number of ways in decentralized trading. From generating profitable trading setups to anomaly detection in DEXes, there’s almost no limitation to what AI can enhance in the DeFi world.
So the term “Decentralized AI trading” is quite ambiguous.
However, in this article, we’re focusing on the use of AI trading bots in the decentralized crypto market.
Decentralized AI trading bots are artificially intelligent computer programs that help you execute trades on decentralized exchanges. These bots analyze the market for the best time and price to make trades and deploy smart contracts automatically based on them.
This entire automated trading process can be termed Decentralized AI trading. Decentralized AI trading can be profitable if you pick the good AI bots and give them the right prompts. Regardless, this kind of trading is best if you’re looking to make passive profits or get a better grasp of how to trade as a beginner.
Is Decentralized AI Trading Legal?
Decentralized AI trading is legal. And while there are quite a number of rules that apply to AI trading in centralized financial markets, there’s good reason for us to believe that they don’t hold up when it comes to decentralized AI trading.
The whole point of decentralized trading is to facilitate the exchange of crypto assets without worrying about a central authority and its regulations. That’s why, for instance, no DEX requires KYC verifications for you to trade with them.
So, even if regulations guide the use of AI trading bots in CEXes and the typical financial markets, they may not apply in decentralized AI trading.
However, this means there’s a higher risk of market manipulation and getting scammed. What happens when one user decides to use a ton of AI trading bots to buy a certain token, inflating its price and then dumping it when you decide to buy? Or when someone hacks your AI-deployed smart contracts?
So, you must be aware of these risks and have loss mitigation strategies in place before you begin decentralized AI trading.
How to use Decentralized AI Bots for Trading
To use a decentralized AI bot for trading bot, you should take to following the nine steps:
- Select an AI trading bot
- Create an account
- Connect to your DEX
- Choose a trading pair
- Edit trading strategy
- Backtest
- Try demo trading
- Deploy
- Monitor and adjust
1. Select an AI trading bot
To use a decentralized AI bot for crypto trading, you must select a good provider. This could either be your DEX’s custom bot or a third-party provider’s like Crypticorn’s AI trading bot.
Furthermore, the bot you pick must be developed by industry experts and have gone through constant backtesting. As a rule of thumb, avoid providers that promise outlandish ROIs and profits in a very short time.
Also, ensure the bot you pick aligns with your trading goals and DEX of preference.
2. Create an account
Once you’ve decided which AI bot you’ll use, create an account on the trading bot platform. This step usually requires your email address and a password. You may also need to buy their native token to gain access, or you may just pay in fiat or crypto.
3. Connect to your DEX
You’ll need to use API keys to connect the AI trading bot to your decentralized exchange. Ensure that you provide only the relevant API keys and avoid giving unnecessary permissions such as withdrawal permissions.
4. Choose a trading pair
Choose a cryptocurrency pair you’d like to trade. This could be BTC/USDT, BTC/ETH, or any trading pair you choose. Just make sure to select one that’s likely to be profitable for trading.
5. Edit trading strategy
Once you’ve connected the AI bot to your DEX, you typically should have some trading strategies to choose from. You can either pick the one that matches your preferred style and risk preference or customize one yourself. Ensure to take into account your position size, stop-loss levels, and trading frequency, among others.
6. Backtest
Backtesting involves using the AI to run simulations of your chosen strategy to see how it performs based on historical data. This allows you to identify loopholes in your trading strategy and refine them before you deploy the AI live.
7. Try demo trading
Paper trading or demo trading, even after backtesting, is always a good idea. It allows you to test your strategy under current market conditions without any risk. This lets you see how the strategy should hold up in real-time and determine whether it is profitable.
8. Deploy
Once you’re satisfied with your chosen strategy, deploy the decentralized AI trading bot. It should execute actual trades based on programmed strategies in the live market environment.
9. Monitor and adjust
Make sure to monitor the trading bot’s performance from time to time. Doing so will enable you to adjust your strategy, if need be, to make better profits or avoid losses.
Best Exchanges for Decentralized AI Trading
We recommend using the following DEXes for decentralized AI trading.
- Uniswap
- OKX DEX
- PancakeSwap
- 1inch
- dYdX
1. Uniswap
Uniswap is one of the original decentralized trading platforms. With a beginner-friendly user interface, it’s gained the hearts of many crypto enthusiasts across the globe, becoming an instant favorite. Some of its appealing features include low trading fees and seamless transactions. It also supports several tokens and cryptocurrencies, so you can easily trade recently minted blockchain tokens.
AI trading on Uniswap is smooth, which is barely surprising considering that the platform has a trading bot of its own.
2. OKX DEX
OKX DEX is another great DEX for AI trading. Like Uniswap, it has custom trading bots, so it’s optimized for seamless AI bot trading. It also allows for cross-chain transactions across multiple blockchains and requires low trading fees.
Since OKX DEX was developed after its centralized version, it has advanced security features and third-party integrations that help keep your identity and funds private and secure.
3. PancakeSwap
PancakeSwap is one of the largest decentralized trading platforms today, running on the Binance Smart Chain (BSC). One of its most significant advantages is its large liquidity pool, similar to Uniswap, due to its automated market maker (AMM) system.
PancakeSwap supports many cryptocurrencies and blockchain tokens, making it an excellent choice for AI bot trading if you’re looking to use uncommon trading pairs.
4. 1inch
1inch is another great option for decentralized AI trading. As a DEX aggregator, it offers the best crypto prices across decentralized exchanges. If your trading strategy involves taking advantage of low prices, you should consider using 1inch.
It also doesn’t have any transaction fees. However, it can be a little complicated and requires quite a bit of crypto knowledge to operate.
5. dYdX
dYdX is a relatively new DEX in the crypto space, but it has quickly risen among the ranks, and is becoming a favorite. Unlike most decentralized exchanges, it’s a unique DEX that uses an order book system. This gives it a somewhat centralized feel but with the luxury of anonymity.
Its other advantages include its mobile version, low trading fees, and high liquidity pool. It’s great for AI bot trading, but you’ll have to check if it has your trading pair, as it doesn’t support as many cryptocurrencies and tokens as the others on this list.
Best Practices and Tips for Using Decentralized AI Trading Bots
Below are some of the best practices you should follow when using AI bots for decentralized trading.
Understand the bot
Before you start using a decentralized AI trading bot, it’s best to understand how it works fully. Spend time exploring its settings, strategies, risk management protocols, and technical parameters.
Always paper trade first
No matter how well you trust an AI trading bot, always paper trade first to simulate the bot’s performance in a risk-free environment. Doing this will help you gain insights without actual financial exposure.
Diversify trading strategies
To make the most from bot trading and minimize losses, use more than one trading bot, each with a different trading strategy. For instance, if you have one that does futures trading on a BTC/USDT trading pair, you can use another for arbitrage trading across different DEXes.
Ensure proper risk management
Implement robust risk management strategies, including setting safe stop-loss orders and defining risk levels you’re comfortable with for every trade. These steps protect against significant losses.
Monitor performance
Regularly review your bot’s performance. Checking metrics like profit and loss statements will enable you to make any fine-tuning that brings out the best trading results. Make sure that any adjustments you make are based on prevailing market conditions.
Set realistic expectations
Have realistic expectations regarding the bot’s performance. It’s best to remember that no strategy guarantees consistent profits, and losses are part of trading.
Avoid overoptimization
It’s tempting to over-optimize your bot to perform at its best based on historical market trends. But this can be dangerous as the market doesn’t always move as planned. Even though backtesting results are great, the AI trading bot may underperform when market conditions aren’t ideal.
Avoid unnecessary interference
It’s essential to let the AI trading bot do its job. After all, one of the advantages of using these bots is that they do not have emotions such as fear and greed. So, if you adjust your strategy every time, your input will limit its decisions.
Set proper security measures
It’s always best to use complex passwords and proper encryption measures when using decentralized AI trading bots. Also, connect only the required API keys to the bot. Avoid granting the bot withdrawal permissions.
Withdraw profits
When you profit from decentralized AI trading, withdraw them and only reinvest funds you’re comfortable with losing.
Top 5 Decentralized AI Trading Bots
From our experience, these are the top 5 decentralized AI trading bots you should consider for passive profit-making.
- Crypticorn’s AI Trading Bots
- Kryll Trading Bots
- Cryptohero
- UniSwap Trading Bot (UNIBOT)
- Haas Online
1. Crypticorn’s AI Trading Bots
Beginning our list is Crypticorn, which has one of the best AI trading bots in the crypto market today. Aside from the typical technical indicators and strategies that most bots are programmed with, they have second-to-none sentiment analysis capabilities that make them stand out from many other options.
They can scour the market for the best tokens to buy/invest in and determine how users feel about the market at particular times. This functionality is possible because of their underlying deep machine-learning technology, which enables them to use the best-optimized strategies for trading.
In addition, you can customize the AI’s risk setting to match your appetite, ensuring it only engages in trades whose risk level you’re comfortable with. They also support a wide range of DEXes.
The only downside is that there’s no mobile version yet. Still, it’s the best decentralized trading bot, and it’s free, as long as you sign up for the $AIC token presale.
2. Kryll Trading Bots
If you fancy a mobile decentralized AI trading bot, Kryll’s AI trading bots may be a good option. They have several trading bots that work across multiple decentralized trading platforms. However, since most DEXes only work on Windows, you’ll only find a few options that work with its mobile app.
Regardless, Kryll’s AI trading bots are some of the most accurate in today’s crypto market.
3. Cryptohero
Cryptohero is another good decentralized AI trading bot option. It performs similarly to Crypticorn’s, allowing you to tune the bot to your risk appetite. It supports many DEXes and allows for backtesting and paper trading.
It also comes with pre-programmed indicators like Bollinger Bands and RSI, enabling it to make accurate trading decisions. While it has a free plan, its premium subscriptions start from $13.99.
4. UniSwap Trading Bot (UNIBOT)
Although it doesn’t use as much AI technology as the other options here, UniSwap’s trading bot allows you to do almost everything a typical trading bot would. It requires a little more manual input, and it’s designed for just one trading platform, but it’s still a great option.
5. Haas Online
HaasOnline has some of the most impressive trading bots online. They offer the option to customize your trading bots to follow a specific strategy or use trading signals.
With pricing plans starting from $7.50, they’re a reasonable option.
Benefits of Decentralized Artificial Intelligence Cryptocurrency Trading
There are several benefits of using decentralized AI to trade crypto. Some of them include the following
24/7 Trading
Decentralized AI trading bots operate continuously, 24/7, allowing for non-stop trading activities.
This makes your trading portfolio unlimited by your waking hours and schedule.
Emotion-Free Trading
AI bots trade based on pre-programmed algorithms, eliminating emotions from decision-making. Human emotions like fear and greed often lead to irrational decisions, but decentralized AI bots remain objective and disciplined.
Algorithmic Strategies
AI bots can implement complex algorithmic strategies, analyze large datasets, and identify challenging patterns for most human traders, especially newbies, to discern.
Speed and Efficiency
AI bots can execute trades quickly and efficiently, reacting to real-time market conditions. This ability is beneficial in the fast-paced and volatile crypto markets.
Setbacks of AI-driven trading
Decentralized AI trading also has disadvantages, some of which include the following.
Complexity and Learning Curve
Not all decentralized AI bots are easy to use. Some require technical and programming skills to be set up and seamlessly integrated with your DEX.
Overfitting and Past Performance
Many AI trading bots tend to perform well on historical data (overfitting) but need help to adapt to new market conditions. Past performance does not always indicate future results, and markets can evolve in ways that algorithmic models may not capture.
Technical and Security Issues
Using AI trading bots isn’t always safe. For instance, within a year, 3Commas, a popular trading bot provider, faced cybersecurity attacks, compromising users’ wallets and incurring incredible financial losses. AI bots can also be susceptible to technical glitches, connectivity issues, or data inaccuracies. Failures in its critical infrastructure may lead to unexpected outcomes and financial losses.
Conclusion
Decentralized AI trading helps automate the trading process on DEXes, saving you time and helping you diversify your trading portfolio. Still, it comes with risks, which we’ve covered in this article. But with the right trading bot optimized for your exchange, you can be sure to make the most out of them.
The information provided in this article is not intended as financial advice. Make sure only to trade crypto assets you’re comfortable with losing, as crypto market conditions can be unpredictable sometimes. Always consider setting relatively safe stop loss levels before engaging a set-up. While you may make a lot of profits using its product, Crypticorn is not liable for any financial losses you incur when trading.
FAQ
Is Decentrailzed AI possible?
Yes, decentralized AI trading is possible. You can connect specific AI bots with your DEX and use them for automated trading.
Does AI trading work?
AI trading works. You can profit from AI trading by using the right bot, such as Crypticorn’s AI trading bots, and a proper strategy.
What is the best AI trading bot for crypto?
Crypticorn has one of the best trading bots today. If you’re seeking quality, you should consider trying them out.
