This article: “The World of Decentralized Finance” was written by Yuxiao Yang – Financial Analyst at I Know First.

Highlights:

• Decentralized finance allows users to get rid of third-party financial institutions for direct transactions.
• In the decentralized financial system, the market remains open at any time, transaction-related information is open and transparent for inquiry, and users can choose anonymous transactions.
• The I Know First AI allows to find promising investment opportunities in the cryptocurrency market.

Nature of Decentralized Finance

Decentralized finance refers to financial services that do not require third parties to operate directly on a public blockchain. Decentralized finance allows individuals, merchants, and enterprises to conduct financial transactions directly through a peer-to-peer financial network of secure protocols, connectivity, software, and hardware advances without the involvement of a third party “central intermediary”, hence the term decentralization.

Anywhere there is an Internet connection, users can conduct a variety of financial transactions using software that records and verifies financial behavior in a distributed financial database. The absence of central authorities and other intermediaries makes these financial transactions more efficient.

Compared with traditional financial services, decentralized financial services are open to anyone. Based on a highly transparent network system, everyone has the right to obtain relevant data and information. Decentralized financial services allow users to control the use of funds, and can choose anonymity in trading activities, which is more efficient and convenient than traditional finance. Due to a series of third-party processing processes, the transaction may take several days. When you want to change the trading type of the financial product you buy, such as short or long, you need to notify your custodian or broker before you can execute the trading order. But in the decentralized network service center, you can complete these businesses by yourself. In addition, due to market transaction restrictions and regulatory mechanisms, in traditional financial services, you can only execute transactions when the market is open, and you can’t trade anonymously. However, in a decentralized service network, you can trade anonymously anytime, anywhere.

Types of Decentralized Finance

Decentralized Finance is a broad area that includes: Payments, Assets, Dexes, Debts, and Derivatives. Payment is a type of decentralized finance. Its products use bitcoin and Ethereum blockchain at the same time. In the field of payment, DeFi products try to make micropayment more efficient and cheaper, so as to improve the scalability of the blockchain network. Lightning network is a product focusing on the bitcoin blockchain. It improves transaction efficiency by transferring small transactions from off the chain. In a lightning network, two or more network members who want to trade can open a channel by depositing funds. They can execute any number of transactions without exceeding the deposited funds. All transactions will be recorded off the chain. When the channel is closed, the latest status of the off-chain ledger will be updated on the blockchain.

Assets are another kind of DeFi product. It mainly realizes decentralized asset management services. The set protocol provides tokens representing other basic assets or token sets. Different assets and tokens are combined in a specified proportion. Consumers can invest portfolios according to different strategies.

Dexes is an open protocol. Instead of relying on the order book, it uses the liquidity pool for token exchange. They use the smart contract deployed on the blockchain of the liquidity pool to promote the exchange of encrypted assets. Transaction rules are encoded into smart contracts deployed on the Ethereum blockchain. Although the rules are formulated by the original creator, the rules will change with the progress of transactions and the change of the market.

Users can borrow an asset by providing another asset as collateral. The collateral is usually eth, and the tokens borrowed depend on the products provided by the company. The debt has accrued interest and should be repaid together with the principal.

Derivatives are another kind of Defi product – derivatives can range from asset-backed tokens to alternative insurance, to decentralized Oracle machines or P2P protocols used to predict the market.

Cryptocurrency Investment with IKF

Bitcoin and most other cryptocurrencies are supported by the technology of blockchain. Cryptocurrency is a digital asset that can be circulated without central monetary authorities such as governments or banks. Instead, cryptocurrencies are created using encryption technology, enabling people to safely buy, sell or trade them. The most accessible method may be centralized exchanges. The centralized exchange acts as a third party to supervise transactions and convince customers that they have received the fees they have paid. These exchanges usually sell cryptocurrencies at market prices and make money through fees for all aspects of their services.

The pandemic has been increasing technology infiltration in our everyday life, and it has been increasing the popularity of DeFi and particularly cryptocurrency assets. According to TradingView, the cryptocurrency market capitalization on April 11^th, 2022 is $1857 bln, while the capitalization on January 1^st, 2020 was $185.105 bln with a tremendous growth rate of 903.21%. Moreover, we can notice a high grade of volatility during the whole period with picks on May 9th, 2021, and on November 8^th, 2021. Therefore, the cryptocurrency market provides a broad range of investment opportunities with a high grade of risk, which requires an investor to have knowledge of the technological aspects of DeFi, which are behind crypto-assets, and monitoring of the macroeconomic environment that could have an impact on the cryptocurrency market as a whole. Another way is to delegate searching for the most promising cryptocurrency assets to artificial intelligence, and it is where I Know First can help. The I Know First AI algorithm covers 106 cryptocurrencies with six investment horizons: 3-day, 7-day, 14-day, 1-month, 3-months, and 1 year. I Know First offers four cryptocurrency packages where investors can choose a package that is more suitable for them (If you are interested in the packages, you can have access to them here.).

I Know First has used algorithmic outputs from the Cryptocurrency packages to provide an investment strategy for institutional investors. The investment strategy that was recommended to institutional investors by I Know First accumulated a return of 111.23% which exceeded the S&P 500 return by 103.23%.

Conclusion:

Decentralized finance refers to financial services that do not require third parties to operate directly on a public blockchain. DeFi includes such areas as Payments, Assets, Dexes, Debts, and Derivatives. The pandemic has been increasing technology infiltration in our everyday life, and it has been increasing the popularity of DeFi and particularly cryptocurrency assets. According to TradingView, the cryptocurrency market capitalization increased tremendously by 903.21% from January 1^st, 2020 to April 11^th, 2022. I Know First successfully offers cryptocurrency packages based on the AI algorithm that allows finding the most promising investment opportunities in the cryptocurrency market. I Know First has used AI outputs to provide an investment strategy for institutional investors that generated a return of 111.23% and exceeded the S&P 500 return by 103.23% for the period from May 23^rd, 2021 to April 10^th, 2022.

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Please note-for trading decisions use the most recent forecast.