Abstract :
This article investigates the efficacy of implementing an AI-powered automated trading system on the blockchain using advanced machine learning algorithms and smart contract technology. The work addresses the challenges of cryptocurrency market volatility, the need for real-time decision making and the limitations of traditional trading approaches that often result in suboptimal returns and exposure to increased risk. This work develops a comprehensive trading platform that combines Long Short-Term Memory (LSTM) neural networks, Q-Learning reinforcement learning algorithms and blockchain-based smart contracts to create an autonomous, intelligent trading system. The methodology follows a multi-layered approach that integrates real-time market data collection from CoinGecko and Snowtrace APIs, advanced AI model training using TensorFlow.js, and smart contract deployment on the Avalanche C-Chain using Hardhat and OpenZeppelin libraries. LSTM model is used for price prediction and Q-Learning agent is used for trading strategy optimization, while comprehensive risk management is implemented using Value at Risk (VaR) calculations, portfolio rebalancing algorithms and automated stop-loss mechanisms. The trading execution is facilitated through direct integration with Pangolin DEX smart contracts to ensure decentralized and trustless trade execution. The performance of the system is evaluated using a sophisticated backtesting engine with Monte Carlo simulations, comparing the AI-driven strategy against traditional buy-and-hold approaches. The performance metrics used were Sharpe ratio, maximum drawdown, win rate, and total return. The AI-powered token prediction system demonstrates a superior performance due to its ability to process complex, non-linear market patterns and adapt to changing market conditions through reinforcement learning, and execute trades with minimal latency through blockchain integration. The findings are expected to provide cryptocurrency traders and institutional investors with a robust and automated trading solution that leverages the benefits of both artificial intelligence and blockchain technology for improved investment outcomes and risk management.
Keywords :
Artificial Intelligence, Automated Trading, Blaockchain, Cryptocurrency, Decentralized exchanges, LSTM, Reinforcement learning algorithm, Smart Contract, Token Prediction, Web3References :
- Benetti, Zeno, and Federico Piazza. 2023. Decentralised Finance: A categorisation of smart contracts. ESMA TRV Risk Analysis. Available online: https://www.esma.europa.eu/sites/default/files/2023-10/ESMA50-2085271018-3351_TRV_Article_Decentralised_Finance_A_Categorisation_of_Smart_Contracts.pdf (accessed on 7 January 2025).
- Chen, X., Zhang, Y., & Li, W. (2023). Deep learning applications in cryptocurrency trading: A survey. Journal of Blockchain Research, 12(3), 145–162.
- Dumiter, F., Cornel, Florin, T., Stefania, N., Cristian, B. and Marius, B. (2023). The Impact of Sentiment Indices on the Stock Exchange – The Connections between Quantitative Sentiment Indicators, Technical Analysis, and Stock Market. Mathematics, 11: 3128.
- Fischer, T., & Krauss, C. (2018). Deep learning with long short-term memory networks for financial market predictions. European Journal of Operational Research, 270(2), 654–669.
- Haq, I., Paulo, F., Derick, Q., Nhan, H. and Saowanee, S. (2023). Economic Policy Uncertainty, Energy and Sustainable Cryptocurrencies: Investigating Dynamic Connectedness during the COVID-19 Pandemic. Economies, 11: 76.
- Kim, S., & Lee, D. (2022). Automated trading strategies in DeFi: A reinforcement learning approach. Journal of Cryptocurrency Research, 7(1), 33–48.
- Li, Y., & Wang, Z. (2021). Hybrid deep learning and reinforcement learning for cryptocurrency trading. International Journal of Financial Engineering, 8(4), 2150032.
- Lua, Z. Z., Seow, C. K., Chan, R. C. B., Cai, Y., & Cao, Q. (2025). Automated Bitcoin trading dApp using price prediction from a deep learning model. Risks, 13: 17, 1 – 25.
- Martin, J., Patel, S., & Nguyen, T. (2020). Integrating on-chain data with AI for enhanced DeFi trading. Journal of Decentralized Finance, 4(2), 55–70.
- Patel, R., Kumar, S., & Jain, A. (2023). Web-based automated trading with AI and blockchain. Journal of Web Engineering, 22(1), 89–104.
- Patil, M., Swani, B., Ranjan, A. and Divyashree, S. (2025). AI-Powered Crypto Price Prediction and Blockchain Wallet Transactions. International Journal of Innovative Research in Technology, 11(11), 3613 – 3617.
- Shah, Kaushal, Dhruvil Lathiya, Naimish Lukhi, Keyur Parmar, and Harshal Sanghvi. 2023. A systematic review of decentralized finance protocols. International Journal of Intelligent Networks 4: 171–81.
- Tabash, M., Neenu, C. Mohamed, T. and Mujeeb, S. A. (2024). Market Shocks and Stock Volatility: Evidence from Emerging and Developed Markets. International Journal of Financial Studies, 12: 2.
- Vancea, D. P., Kamer, A., and Cristina, D. (2017). Political Uncertainty and Volatility on the Financial Markets – the Case of Romania. Transformations in Business and Economics 16: 2A.
- Watorek, M., Jarosław, K, and Stanisław, D. (2023). Cryptocurrencies Are Becoming Part of the World Global Financial Market. Entropy, 25: 377
- Zhang, Y., Li, X., & Wang, Q. (2022). On-chain data analytics for DeFi trading optimization. Journal of Financial Technology, 5(3), 77–92.

