What are AI tokens, and why are they trending?

AI tokens are the town's talk these days, creating a buzz in the crypto world.

What are AI tokens, and why are they trending?
People stand in front of the Blockchain Hub Davos 2023 at the Promenade road during the World Economic Forum (WEF) 2023, in the Alpine resort of Davos, Switzerland, January 16, 2023. REUTERS/Arnd Wiegmann

The backstory: AI tokens are the town's talk these days, creating a buzz in the crypto world. Basically, these are cryptocurrencies that use AI to improve security, user experience, scalability, etc. They also harness the power of artificial intelligence to offer users cool apps and services like data exchange and intelligent automation. Their potential to revolutionize how we interact with tech is causing both startups and big-name companies to launch their own AI tokens, and the market is growing fast.

More recently: Some AI-based tokens have gotten super popular, with traders on Crypto Twitter saying they're the next big thing. Nearly every token CoinGecko recognizes as AI-based, including SingularityDAO, SingularityNET and Artificial Liquid Intelligence, has seen huge gains over the past week – up to double digits. This trend is giving déjà vu of 2018's blockchain frenzy when a bunch of companies made blockchain-related announcements. OpenAI's ChatGPT and Google's Bard breaking the internet recently are major reasons for this interest.

The development: Now, people are jumping on the AI token bandwagon left and right. And the price swings are wild, even for the unpredictable crypto world. For example, last Tuesday, privacy-focused network ARPA's token (also called ARPA) had a massive surge of over 10% in just an hour. But get this, it happened after ARPA's co-founder, Felix Xu, shared a two-year-old press release about their project's collabing with Alibaba on machine learning. Though we can't say this is the reason for ARPA's price jump, the timing is pretty interesting.

Key comments:

"The growth opportunity around the AI and Web3 space combines early interest, potential and hype," said Ravindra Kumar, crypto services firm Frontier's founder. "While it's true that there may be some hype surrounding AI intervention in the crypto space, we are seeing the emergence of innovative and compelling use cases.'

"People are just riding the ChatGPT wave," said Wilfred Daye, the former CEO of Securitize Capital, a digital asset management firm. "The phenomenon can last as long as the sentiment is around."

"It does sound faddish," said Noelle Acheson, author of the "Crypto Is Macro Now" newsletter, referring to the popularity of AI tokens. "Then again, the fact that they exist and are now attracting attention says a lot about the improvement in market sentiment – investors are looking for new ideas, the new hype thing that could deliver returns."

"Once the market starts livening up a bit, all sorts of new trends come out of the woodwork. And they are not all as solid as they might look," said financial market consultant Valentina Drofa to CoinDesk. "There is a risk that this whole 'new trend' is going to end up in an empty hype, as there are many speculators that would seek to make use of short-term price pumps."