Article reposted from: Nancy
Author: Nancy, PANews
Every crypto cycle brings forth a dominant narrative, and AI+ is undoubtedly one of the biggest themes of this bull market, especially with the AI Agent frenzy capturing a significant portion of on-chain liquidity. Discussions in the market about crypto AI are increasingly resembling those during the DeFi Summer cycle. This article by PANews will compare the market development scale of crypto AI and DeFi and explore the similarities and differences in the development of these two fields.
A market cap of $48 billion surpasses that of the DeFi Summer, but whether it can replicate DeFi's success is controversial.
According to CoinGecko data, as of January 2, the market capitalization of the crypto AI sector has reached $48.8 billion, a figure far exceeding the market capitalization during the 'DeFi Summer' period. According to data from The Block, after the explosive growth phase of DeFi in 2020, the market cap peaked at $6.04 billion, only breaking through the $50 billion mark in mid-April 2021 when the market had gradually matured and diversified. This comparison indicates that the explosive power of crypto AI has surpassed the early development stage of DeFi, demonstrating stronger advantages in market attractiveness and growth potential.
Especially in the AI Agent sub-sector, there has been continuous explosive growth during this period. According to data from CoinGecko, as of January 2, the market capitalization of AI Agents has reached $16.93 billion, accounting for 34.7% of the entire crypto AI sector, a figure comparable to the total market capitalization of DeFi protocols in January 2021. Taking leading projects like Virtuals Protocol ($5.02 billion) and ai16z ($2.7 billion) as examples, the combined market capitalization of these two has surpassed the total market capitalization of all DeFi protocols at the end of 2020, further highlighting the rapid development of the AI sector. In comparison, leading DeFi projects Uniswap and Aave had peak circulating market capitalizations of $22.05 billion and $6.58 billion respectively during the last bull market.
In terms of capital investment, DeFi has rapidly attracted substantial venture capital injection after its development, and crypto AI is currently in a similar phase, with increasing amounts of capital flowing into the AI sector, resulting in a surge of investments surrounding crypto AI. According to the 2024 financing report compiled by PANews, DeFi received $1.69 billion in 296 investment and financing occurrences in 2024. AI projects, as an emerging category, have grown rapidly this year, with nearly 100 disclosed financing events, of which 15.2% received tens of millions of dollars in funding, with a total funding scale of around $600 million.
Despite the impressive data performance of the crypto AI sector, there are differing opinions on whether its development cycle can mirror that of DeFi. For example, Messari's latest report indicates that AI Agents will peak in the first quarter of 2025 and will not recover. The reasons include: (1) AI Agent proxies have yet to demonstrate product adaptability sufficient to support market speculation; (2) The successful establishment of Alt-L1 is based on clear demand for block space during the DeFi boom, but AI Agents lack both demand and a clear user base; (3) The launch of AI Agents relies on market speculation, but when the market realizes that they will remain mere novelties in the foreseeable future, this speculative cycle will collapse.
There are also viewpoints suggesting that AI possesses development potential similar to that of DeFi. For instance, crypto KOL @0xWizard stated that 2020 could be termed the 'Cambrian Explosion of DeFi', and 2025 is likely to be the 'Cambrian Explosion of AI Agents'. Various AI+Crypto applications will begin to take shape next year. Researcher Haotian believes that the arrival of AI Agents is akin to the DeFi Summer of 2020 in that it will create a massive new 'bubble' narrative cycle of Build+Speculation. Although the AI Agent ecosystem may not yet have dedicated infrastructure conditions, the ecological plasticity indicates that the narrative opportunities brought by AI Agents are much grander than those of DeFi.
Former Spartan Group member @0xJeff predicts that 2025 will be referred to as the Agentic era, with Agentic-type L1 reaching a market cap of $100 billion, similar to the L1 valuation cycle of 2020-21; DeFi, with the help of AI Agents, will reach over $200 billion in TVL high points from the last cycle.
Regarding the valuation of AI MEME coin projects, crypto KOL @Rui stated that in the early MEME market, the valuation of projects was closely related to whether they could be listed on exchanges, especially top exchanges. However, with the rise of AI Agents and market changes, the original valuation system based on exchange logic for large-cap MEMEs has become ineffective, and expectations for project valuation are not about which exchanges they will be listed on, but rather what kind of ecosystem they will create. For projects that already have an ecosystem, valuation can be determined based on their ecosystem's share; for standalone or 'wild system' projects, the key for valuation is whether they can break the $100 million market capitalization. Below this market cap, more reliance is placed on community support, dissemination, and early funding.
Four commonalities from cultural influence to funding efficiency
The combination of technology and capital is the core driving force behind the development of the crypto industry. In the last bull market, DeFi reshaped the crypto financial world through decentralized platforms and smart contracts. Now, crypto AI is changing the operation of the crypto market in a more intelligent and automated way. Currently, both fields share similarities in cultural influence, technical foundations, entry barriers, and capital efficiency.
Meme culture
As one of the core narratives of the last crypto bull market, DeFi embodies a spirit of rebellion against traditional finance. Many DeFi projects have attracted attention by providing real financial functions while using humorous and playful naming methods (such as various food series). Initially, the market often viewed DeFi more as a liquidity game rather than purely financial tools, but this breaking of the 'seriousness' of traditional finance unexpectedly stimulated reflection and discussion on the traditional financial system, rapidly accumulating significant developer and user participation.
Similar to the meme culture in the early DeFi narrative, the popularity of crypto AI has also leveraged the cultural power of MEMEs. The rise of AI Agents relies not only on technological innovation and application value but also quickly gathers sentiment through humorous and satirical MEME formats, thus stimulating interest and participation among on-chain users, including attracting new groups such as external developers and researchers in a more relaxed and interactive manner.
Technical foundation
With support in smart contracts, token standards, and developer ecosystems, Ethereum's flexibility provides a strong technological foundation for the rise of DeFi, allowing developers to innovate financial products based on needs. Its decentralized and open-source mechanisms also offer users a fair and transparent financial platform.
The rise and popularity of the crypto AI narrative in this cycle also began with the explosive advancements in AI technology, particularly with the emergence of large language models (such as ChatGPT), which revealed the immense potential of combining artificial intelligence technology with blockchain. At the same time, the rapid enhancement of AI large model capabilities has empowered more intelligent on-chain applications, such as trading strategies, market predictions, smart contract automation, and data analysis, providing new perspectives and momentum for innovations in crypto technology.
Entry barriers
In contrast to traditional financial systems that require complex procedures, bank accounts, and credit checks, DeFi can provide a financial service model that is intermediary-free, open, and transparent through blockchain and smart contracts, allowing users to freely engage in lending, trading, liquidity provision, and other activities with just a crypto wallet and a small amount of crypto assets without being restricted by geographical and economic backgrounds.
Compared to traditional crypto tools and platforms, AI Agents provide a more intelligent and automated operating method, allowing users to easily engage without needing to deeply understand complex technical details or possess specialized trading knowledge and experience. Additionally, high-quality AI Agent projects have lowered participation barriers and provided convenient operational pathways, breaking the previous high thresholds set by platforms like VCs and centralized exchanges (CEX), thus offering more participation opportunities for individual investors and opening lower-cost, more decentralized innovation pathways for developers and project teams.
Furthermore, AI Agents' integration with MEME culture has lowered the cognitive barriers to understanding crypto AI technology, especially for non-technical users, and has broken the high-threshold image of technical projects, making participation in this field more diverse, accessible, and entertaining.
Capital efficiency
In the DeFi narrative, capital efficiency has always been one of the core driving forces. DeFi platforms utilize smart contracts and automation mechanisms to significantly enhance capital utilization efficiency. These platforms attract substantial institutional and retail user funds into the market by offering high APY and capital returns. Because there are no intermediaries or traditional banking processes involved, capital can flow in a shorter time and achieve higher returns, greatly improving market capital efficiency.
AI Agents, through the automation and intelligent processing of artificial intelligence technology, can help users achieve more efficient capital operations in the crypto market. Unlike traditional manual intervention methods, AI Agents can automatically execute tasks such as trading, asset management, and risk control based on real-time market data, helping users seize market opportunities, avoid emotional decisions and human errors, and significantly enhance capital operational efficiency. Moreover, AI Agent projects provide more users with opportunities for profit redistribution through on-chain execution mechanisms, allowing participants to enjoy the growth dividends of the project with low entry barriers.
Four differences from technology-driven to user participation
While both DeFi and crypto AI demonstrate similar driving forces and potential for innovation in the crypto market, significant differences exist between them on multiple key levels. These differences are reflected not only in the complexity of technology and breadth of application scenarios but also in the different ways market driving forces and user participation manifest.
Application scope
The main focus of DeFi is on-chain finance, with major innovations concentrated on building financial tools such as decentralized exchanges (DEX), automated market makers (AMM), and lending protocols. Although these innovations have disrupted the traditional financial system, their application scenarios are relatively concentrated and clear. In contrast, the application range of crypto AI is broader, covering multiple areas like on-chain finance, AI-generated content (AIGC), NFTs, smart contract automation, and data analysis. Although crypto AI involves higher complexity in technical integration, it also allows for more extensive coverage of market and user needs. In the future, as large AI models develop technologically, it will drive more cross-domain innovations and applications.
Technology driving force
The technological innovation of DeFi primarily relies on blockchain and smart contracts, driving innovation in decentralized financial ecosystems, with its core motivation stemming from decentralized trading, permissionless financial innovation, and automatic execution of smart contracts. In contrast, the crypto AI narrative has complex and diverse technological driving forces, ranging from trading strategies and risk management in finance to content generation, personalized recommendations, data analysis, and a broader range of applications.
User group
The main user group of DeFi consists of on-chain native users, who typically have strong financial operation experience. In contrast, crypto AI not only attracts crypto natives but also gains a large number of non-technical background users, including content creators, developers, and technical researchers, giving it a significant advantage in terms of popularity and market coverage.
Market capitalization driven
The market capitalization of DeFi projects is mainly determined by factors such as the volume of assets locked, exchange listings, and liquidity, relying more on the frequency of financial tool usage on the platform and the level of user participation, making market operations relatively direct and transparent. In contrast, the valuation logic of crypto AI projects is more complex and has higher uncertainty, requiring consideration of not only the depth and breadth of technological innovation but also the ecological influence and development potential of actual application scenarios. This implies that the sustainability of the crypto AI narrative depends on the combination of technological advancement and user demand, presenting higher risks and potential.