Crypto currencies

AI application to detect fraud

7. März 2023, 8:30 Uhr | Tobias Schlichtmeier
DeFi – Risk Advisor KI
The new »DeFi - Risk Advisor AI« is designed to highlight risks before investments are made as well as to make them transparent in the existing portfolio.
© Blockbrain

More and more people are investing in crypto currencies. The profits are tempting, but unfortunately the risks are also high. That's why the Stuttgart-based start-up »Blockbrain« is developing an AI application together with the University of Ulm to detect fraud.

The so-called »DeFi - Risk Advisor AI« is being developed by Stuttgart-based startup Blockbrain in collaboration with the University of Ulm. It is designed to support investments in crypto currencies, non-fungible tokens (NFTs) and other blockchain-based financial products with automated decision support. A data-based early warning system helps with this.

»The goal is to use artificial intelligence (AI) to help people optimize their own portfolios, make good investment decisions and avoid scam projects,« explains Professor Andre Guettler. The head of the Institute for Strategic Management and Finance is involved in the project on behalf of the University of Ulm.

»The AI application uses large amounts of structured data, for example from blockchain-based financial products or DeFi marketplaces, as well as unstructured data from social media, blogs or news platforms. This is intended to identify patterns that provide information about risks and dangers and ultimately help optimize one's own portfolio by making risk-conscious decisions,« explains Antonius Gress, one of the Blockbrain founders. The DeFi - Risk Advisor AI is intended to make this particular asset class of blockchain-based financial products accessible to a broader mass of people.

Non-Fungible-Token

Blockchain-based financial products include, for example, so-called non-fungible tokens (NFTs). They are digital, uniquely verifiable objects that represent specific digital or physical items. »You can think of an NFT as a digital Panini trading card. You can keep this forever, and show it to your friends, for example. But you can also sell it to someone else if you want. And you can clearly track these sales on the blockchain, which makes counterfeiting much more difficult,« Guettler illustrates.

Billions are already being turned over via NFTs in the metaverse, gaming or art sectors. And other increasingly digitally dominated sectors, such as the music industry, are also becoming more attractive for trading NFTs. »In the real estate sector, on the traditional financial market, and in trading with CO2 certificates, NFTs have to be physically deposited, so they need a tangible counterpart in order to spread. That's why it will probably take some time for NFTs to gain a foothold in these areas as well. However, these markets will then be significantly larger than digitally deposited NFTs,« believes the economist from Ulm.

With the growth and return potential of NFTs, cryptocurrencies and other DeFi financial products come considerable risks. Although the technical processes of implementation are considered secure, it is not uncommon for the implementation to falter or for criminal intentions to be behind it.

System sends early warning signals

In order to make the market of decentralized financial products safer for investors and get more people interested in these financial products, Stuttgart-based startup Blockbrain wants to establish an AI-based advisor system. It should be able to point out signs of foreseeable fraud in NFT projects, for example, or detect when providers want to withdraw from the project prematurely.

»The system then sends early warning signals and can thus protect investors from losses,« specifies Gress, the Stuttgart-based startup founder. The development team is also working on optimization techniques for NFT portfolios. »We want to use them to prevent investors from investing too much money in too few or highly interrelated projects. These techniques are also widely used in traditional financial investments such as stocks. The challenge is to transfer them to the NFT sector, which is still in its infancy,« say the DeFi experts from Ulm and Stuttgart.


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