How AI and RWA are Shaping DeFi’s Evolution

Claude Eguienta, a driving force behind Mimo Capital, shared his thoughts on the current and future state of DeFi with BeInCrypto.

With a focus on integrating Real World Assets (RWA) and leveraging Artificial Intelligence (AI), Eguienta’s work promises to usher in a new era for decentralized finance.

The Plateau of Real World Assets 

Claude opens the discussion by reflecting on the trajectory of RWAs within the decentralize finance ecosystem. Initially, there was a surge of enthusiasm as platforms like Ondo Finance introduced novel protocols, signaling a new edge for RWA in DeFi. However, he notes the momentum seemed to have plateaued, revealing a landscape where the vast potential of RWAs remains largely untapped due to various market readiness and regulatory challenges.

«RWA is a story that has been trying to happen for a long time. The biggest kick happened when Ondo announced tokenized T-bills in January: Centrifuge came earlier, but I guess they came at the moment when the market wasn’t ready to listen about those things. It seemed pretty huge from a crypto bubble perspective and attracted a lot of attention. But if you take a couple of big players out of the equation and look at the open protocols that have some traction from users other than their respective founding teams, it really plateaued».

Despite these obstacles, Eguienta’s perspective on tokenized real world assets is far from pessimistic. He recognizes the plateau as a phase rather than a permanent state, suggesting that the DeFi community is on the brink of more sophisticated RWA integration strategies. Moving beyond conventional assets, the company is exploring the tokenization of Bitcoin mining operations and AI data centers. For instance, the complexity of Bitcoin mining deterred many despite their interest. Tokenizing the operations demystifies the process. The same goes for AI: the traditional route through brokers, often leading to a suggestion to invest in companies like NVIDIA, felt inadequate for those seeking direct exposure to AI’s financial benefits. Recognizing this gap, Mimo Capital aimed to serve as a bridge, transforming from an alternative option into a pivotal enabler within the economic ecosystem.

This shift is not just about diversifying offerings but about aligning with the inherent risk-reward profiles that attract the crypto community. 

«The whole goal of a lot of the stablecoins that were representing RWA, like the ones that we came up with, USK and others, was to provide the convenience of a stablecoin and the yield of reward asset placement. But it just didn’t materialize this way in the heads of users because the convenience of stablecoins’ liquidity was never matched by any RWA asset, at least just not yet. We examined the state of RWA and recognized a disconnect, realizing that users in the crypto world were not really looking forward to going through the hoops of KYC and all that for a 5% yield. And the safety brought by RWA was not really speaking to the crowds. Users willing to go through all this would rather register at a centralized exchange and go for multiples instead of single-digit percentage gains. Now we’re looking at much higher yields, riskier investments which match what crypto enthusiasts are truly seeking».

AI: A Catalyst for DeFi’s Evolution

One of the most intriguing aspects of Eguienta’s vision for DeFi’s future is the role of AI. From enhancing security protocols and user interfaces to enabling more sophisticated financial modeling, AI’s potential to revolutionize DeFi is immense. Eguienta shares examples of how AI can provide users with decision-making support, streamline audits, and offer protection against scams.

«I didn’t personally try these products, but Bunzz tries to help with smart contract audits, and Next Gem AI tries to help with users’ decision-making processes regarding safety. It’s clear that these products are young, but they clearly show the industry’s willingness to integrate AI».

Mimo Capital is integrating Artificial Intelligence at several levels, reflecting a comprehensive strategy to leverage AI for internal efficiency and product development. The company has purchased specialized AI hardware, a decision driven by Claude’s long-standing engagement in AI research and its proven benefits within Mimo’s operations.

Recognizing the demand for AI across various industries, Mimo identified a unique opportunity. Many companies, from automotive manufacturers to tech startups, seek to incorporate AI. This demand has led to a significant supply shock in the AI hardware market, particularly for high-end NVIDIA chips necessary for training AI models efficiently. Mimo’s strategic acquisition of these scarce resources allows it to offer them for lease, creating a new yield-generating product in AI hardware leasing.

Co-Pilot On Board

Anticipating a more integrated platform to showcase these offerings, Mimo developed a proprietary wallet. This wallet is designed to simplify user interaction with DeFi investments, offering an easy way to manage portfolios across various blockchain networks. It aims to be a non-custodial, open-source solution supporting a wider range of protocols beyond Ethereum Virtual Machine (EVM)-compatible chains.

«We were like, well, this could be a very nice yielding product. And then we started to think about where we were going to sell this. The first thing that came to our minds was KUMA, our main RWA platform. But we were also thinking about a broader product that deserves a better place to sell. So we decided to come up with a wallet where it would be easier to onboard, view your DeFi positions and anything where you can go and get yield. As we were building this wallet, we realized it would be a nice thing to let people onboard on multiple chains, a non-custodial wallet, open source, something that the industry should have been building for a long time, but we just didn’t see any good open source wallet come that supports anything else than EVM».

This ambition led to developing a new wallet, not just as a repository for digital assets but as a platform to explore the intersection of AI and finance. During the development process, an innovative idea emerged: embedding an AI assistant designed to offer users personalized financial guidance, capable of analyzing their DeFi positions and market conditions and suggesting actionable strategies.

Integrating AI directly into the wallet transforms it from a tool for transaction management into an interactive advisor capable of executing recommendations with a single click. As an experiment, this initiative is approached with seriousness and an openness to learning. It represents a dual effort to enhance the crypto ecosystem: providing AI-driven yields while improving user experience through direct AI assistance. 

The Path to Regulatory Engagement

The journey towards mainstream adoption is fraught with challenges, particularly in the regulatory domain. Achieving regulation in one jurisdiction can offer a competitive edge, yet understanding how to operate globally under local regulations remains complex. Beyond tokenizing traditional assets, venturing into more intricate areas introduces additional regulatory complexities. Projects aiming to tokenize tangible, real-world assets must navigate these regulatory waters while building trust in their platforms. 

«In case you want to go with something a little bit more complex than just T-bills, you add a degree of from a regulatory standpoint. Because you want to tokenize real things and not necessarily like assets that are already trading somewhere with a regulated custody framework. So you can’t use the banking infrastructure as a backbone. You have to essentially recreate some infrastructure to let you tokenize things properly and make people understand that they can trust it. So you need your auditors to understand that this AI data center that you are using as collateral is going to be safe. You need to do the same for your Bitcoin mines in our case. It’s pretty complex, to say the least».

Some regulatory bodies might respond by outright banning such activities, aligning with their stance against cryptocurrencies. Others might create regulatory frameworks or adopt a sandbox approach, allowing entities to operate under a provisional status while monitoring outcomes.

«This method has been explored in Singapore, and several other Asian countries and it has proven quite effective. In contrast, the regulatory environment in the United States takes a markedly different approach. Entities are left to determine whether their operations classify as securities, with the understanding that regulatory bodies might intervene if deemed necessary. This uncertain terrain poses significant challenges for industry participants, making the U.S. a particularly complex jurisdiction for RWA space operations, aside from regions where cryptocurrencies face outright bans. Europe, however, has shown a more progressive stance. The European regulatory landscape has been notably clear and forward-thinking».

For instance, Mimo received a license to tokenize assets, indicating a progressive stance by European regulators. Interestingly, European regulators, including the Financial Market Authority (FMA) in Liechtenstein, are reconsidering their regulatory framework to align with new Europe-wide regulations on cryptocurrencies, which do not categorically require the tokenization of real-world assets to be regulated. This could mean that activities previously under regulatory scrutiny might transition to being unregulated — not in the sense of being prohibited but rather not specifically monitored by regulatory authorities.

«The main challenge is to understand what happens and where. Once you get regulated somewhere, what exactly can you do? How well can you operate globally using your local regulation? Navigating this type of framework has been somewhat challenging, but this is the name of the game». 

The Future: Innovation and Education

Eguienta is optimistic about the intersection of DeFi, RWAs, and AI. He highlights the development within the DeFi sector tends to be driven by momentum, focusing on trending topics and investor interests rather than addressing underlying issues or leveraging technology’s full potential. The industry’s heavy reliance on venture capital influences, prioritizing projects that mirror existing successes with the allure of new governance tokens backed by notable VCs, exemplifies a cycle of imitation over innovation. Such strategies often need more of the essence of true innovation, serving more as a testament to the industry’s current limitations than its capabilities.

The change toward reducing the costs associated with developing novel DeFi solutions could enable more substantial innovation. Making auditing more accessible, simplifying the development process, and lowering entry barriers for developers, especially those equipped with AI tools, could create a more inventive ecosystem. The complexities that genuine DeFi initiatives face pose significant barriers to entry, sharply contrasting with the rapid development cycles typical of the traditional Web2 startup environment.

«The future of DeFi hinges on our ability to innovate responsibly, educate our users, and operate within a clear regulatory framework. The regulators have done their job. They provided us with regulatory frameworks, so we (as an industry) can’t blame them anymore. The institutions have done their jobs in many countries, and banks are willing to open bank accounts for crypto companies so we can now be established as proper companies. We can’t blame those guys anymore. Now it’s really about us to deliver solutions that people actually care about and problems that people have and want to be solved».