@Arthur_0x is one of the most legendary DeFi investors, achieving 100X in less than 3 years. Now transitioning to the secondary market, his performance remains outstanding.
All the trading tips he has never shared with others are here👇
Arthur entered the crypto space in 2017 when he was 20 years old.
While studying at Nanyang Technological University, he majored in Economics and minored in Entrepreneurship.
To this end, he actively participated in extracurricular activities, served as the vice chairman of the investment club, and was reported by the Asian News Channel as one of the young investors.
After graduation, Arthur joined BP as a trader, one of the world’s largest oil commodity traders, rotating through shipping, analytical and trading functions, working closely with traders and charterers to grow trading volumes for the company.
Arthur became more and more interested in blockchain, so he resigned from the international oil trading company he was working for at the time. This experience in commodities helped him establish a set of stricter standards in crypto investment, which enabled DeFiance to minimize losses in the FTX crash.
Later, he became a fundamentals-based investor and focused on the potential use cases of cryptocurrencies beyond speculation. This led him to delve into DeFi in early 2019 and take advantage of the opportunities brought by the DeFi Summer.
Today he is the founder of @DeFianceCapital. He used to do both primary and secondary investments. His current fund mainly focuses on the secondary market. He is also a KOL with more than 100,000 fans.
Arthur said: "As I grew as an investor, I gradually figured out my own investment philosophy. Every investor has his or her own investment philosophy, such as Buffett, who represents the concept of long-term value investment. Once your investment philosophy is formed, you will start looking for investment strategies that suit you. These strategies will be adjusted according to changes in market conditions, but the core concepts are usually not easily changed."
Through these experiences, he realized that successful investing requires not only a keen eye, but also the ability to constantly learn and adapt to the market.
What was Arthur’s upbringing like?
As he grew into an investor, he discovered that everyone had similarities in their exploration of investment philosophy.
Usually, people first come into contact with stock investment from a fundamental perspective. But in the past 10-15 years, he has observed that the importance of the US stock market has been growing, becoming the only market in the world with a long-term surge. Other markets, such as Europe and Asia, have not seen similar surges. So not all markets will have long-term surges, the key lies in the fundamentals of the entire market.
The second is that the popularity of value investing is declining. Narrowly defined value investing, i.e. stocks with higher PE, has performed poorly in the past 10-15 years. The better performers are those investing in some growth stocks, such as technology stocks. He also tends to invest in such growth projects.
If you want to get returns that exceed the market, the key is to discover projects that can exceed the market growth rate earlier than the market. This is the key to obtaining alpha returns.
Arthur believes that cryptocurrency is well suited to this global investment strategy because it is a global asset. If a crypto project finds the right market positioning, its growth potential can be exerted globally.
This is one of the reasons why American and Chinese companies are successful, as they can expand quickly in large markets, while in Southeast Asia and other regions, due to market complexity, expansion is more difficult.
So Arthur gradually formed his own investment philosophy.
DeFiance Capital’s investment strategy revealed
Arthur said, “We are probably between eight and nine figures in size.”
The typical strategy is to select coins for investment based on fundamentals. “Of course, we mainly choose small and medium-sized coins.
Bitcoin and Ethereum will not be our main investment directions, because our investment goal is to outperform beta, and beta refers to Bitcoin and Ethereum.
When we were founded in 2020, we started with DeFi, and since then we have invested in any track we think has the potential to grow. Last year we also invested a lot in AI, and we have been investing in games as well.”
Someone asked Arthur: "How do you know for sure?"
He said frankly: "I think this can only be achieved by spending time. This is actually a threshold. As long as you are willing to spend this time, you can still reach the level of investment in a not too long period of time. Of course, you can't say that you understand it as deeply as technical personnel.
But I think that as a good investor, you don’t need to have that knowledge before you can invest. You just need to have a basic understanding to start investing.
Advice for Newbies
His answer to the question of how to quickly understand a new track is unique.
Arthur says his method is three steps.
The first step is whether this track is compatible with Crypto. He thinks this is what he learned in 2017. Sometimes people reluctantly put this application on the blockchain, but in fact the compatibility between the two may be very low.
The second step is whether there is a possibility of rapid growth. Because we are all a little impatient, if some tracks take a long time to run, everyone may not have that much patience.
The last step is data. Do you have data to support your opinion? If you are optimistic about this track, then you should prepare some data to support it, and you need to give yourself some time to make a judgment.
If you say you are optimistic about this track, then I may see some data in three to six months to support my optimistic view of this track. If this data is not reflected after six months, then you should re-examine your view.
Learning from other people's mistakes is wisdom, and learning from your own mistakes is wisdom.
What are the investment lessons from DeFiance Capital?
During the operation of its previous fund, due to some force majeure reasons, the fund launched a new phase between 2020 and 2023.
Many LPs who previously supported Arthur expressed strong support for the establishment of the new fund and invested in it, which made the latest fund perform quite well.
During this process, Arthur reflected on his experience and believed that there were many useful lessons for people doing business. He pointed out that in the investment industry, there are many opportunities and the threshold is relatively low. However, this industry also has its difficulties because many things are still immature and easy for everyone to guess.
Arthur mentioned that in the past 5 to 7 years of industry history, the key to success is to "survive". As long as you don't fail, you will be considered a relatively successful investor.
In the investment process, in addition to market risk, there are two main risks to pay attention to:
The first is custody risk. He believes that when managing other people's funds now, good custody operations must be in place. Recently, some exchanges have been hacked and lost hundreds of millions of funds, which is unacceptable in 2024. Investors should not spend too much energy on custody, but should use the industry's top custody services to solve this problem.
The second is the counterparty risk, including the exchange and the investment project itself. Some people lack imagination about these risks because they are usually optimistic about the future. However, once problems arise, such as borrowers not paying back the money or exchanges closing down, investors will face great losses. He reminded everyone to do a good job of risk assessment and not to easily believe the promises of the project party.
Arthur said he had lost money in custody and counterparty risk. Starting in 2022, they found an imbalance in the market: too many venture capital (VC) funds emerged, and the market did not have enough liquidity to take over these funds. Especially in the United States, the size of some large VC funds far exceeded what the market could bear.
This in turn provides opportunities for the secondary market, which is more volatile and many LPs are unwilling to participate.
More and more high-quality projects are ignored after the token issuance, because VCs tend to focus only on early-stage investment and ignore subsequent operations. Therefore, Arthur wants to fill this market gap and provide support for projects that need help. The functions of VCs are more diversified.
As the industry becomes more mature, how should retail investors respond?
Talking about the landmark events of market changes in this cycle compared with the previous cycle, Arthur feels that there are many "watersheds", such as the FTX liquidation, and then the settlement between Binance and the US government. He feels that these are all milestones.
“Of course, in our industry, there will still be a lot of wild ways of playing, but I think it will become more and more difficult. Of course, it’s not to say that it’s completely impossible.
For example, this year's performance is why Bitcoin is high all the time, but many friends feel that they don't seem to make much money. Because our positions in various first-level and small coins are usually larger than Bitcoin.
The biggest change is that the market is indeed moving towards a more institutional direction.
The largest exchanges in the industry have already reached a settlement with the US government. So they may have more restrictions on their operations in the future.”
How to accurately determine the entry and exit time of the target?
A VC friend asked: "I often read your LP reports. First of all, the performance is very good. In this process, there are actually many targets that you see but others may not see. You also have a large position in tokens, but the market liquidity is not that good, so how do you judge the entry and exit time of some specific targets?"
Arthur said that this is actually the most difficult to control accurately.
Market timing is still very important for our industry. He believes that there is no completely correct answer, and you need to make corresponding adjustments according to different market conditions, and they are always making adjustments.
So he thinks the biggest difference between this cycle and the previous cycles is that when you see a project with good fundamentals, you should be more proactive in profit taking.
"For this cycle, I think the best time to take profits is no more than two months. In fact, from the second half of March to the first half of April, this short month is the best time to exit profits. If you don't exit, it is still easy to be far away from that price.
So, I think you need to look at the market from a macro perspective, including liquidity, trading volume, sentiment, funding rate, positive and negative. In fact, we will continue to increase the data that can be analyzed to reach a time point that is better for macroeconomic configuration.”
In terms of fundamentals, Arthur will also look at the transaction volume on that chain, that is, whether there are majority buys and sells.
We also need to look at the growth of fundamentals. Because sometimes he feels that from a more fundamental perspective, many blockchain projects have gone from being very low to being very overvalued in a very short period of time. The AI track is the best example.
Arthur thinks that the AI track was relatively underestimated last year. Because at that time, people were still relatively conservative about Crypto AI. But when the bull market came, everyone started to speculate fiercely. Many things have increased by more than ten times.
DeFiance Capital’s experience of making a lot of money
According to Arthur's recollection, his project with the highest peak return rate was @AxieInfinity, with a peak return rate of nearly 2,000 times, an investment cost of about 8 cents, and a peak price of more than $160. Of course, it is impossible to sell all at the highest point, because some tokens are still locked, and although the return rate is high, the investment is very small.
When Axie raised its first round of funding, I believe there were very few investors in this field. In addition, it was a bear market at the time, and the total funding for that round was less than $1 million, so they did not invest a lot of money. But judging from the rate of return alone, this project has the highest rate of return.
If we look at the track, the most successful one is DeFi. We entered this track very early, so basically we have invested in all the successful blue-chip DeFi projects, such as dYdX, Sushiswap, AAVE, YFI, Synthetix, etc.
DeFiance Capital also made good investments in the secondary market. Because many DeFi projects in the early stage did not have so-called seed rounds, if you want to invest, you can only buy tokens or participate in liquidity mining. Many of the YFI, Synthetix, and Sushi mentioned above are investments in the secondary market.
Lessons learned from the Terra and FTX incidents
After these events, Arthur will have a higher requirement for the team's ethics, which is called integrity in English. If a person has personality problems, no matter how successful his project is, it is likely to collapse in a short time.
The industry has experienced many similar things. Individuals and institutions such as Luna and FTX, which once dominated the industry, broke the moral bottom line due to personality and existence problems, so they collapsed even though they were very big. For investors, this kind of investment does not make much sense unless you are pursuing very short-term benefits.
The famous American angel investor Naval Ravikant once said: Pick business partners with high intelligence, high energy, and, above all, high integrity...And then high integrity is the most important because otherwise if you've got the other two, what you have is you have a smart and hard-working crook. who's eventually going to cheat you.
That is to say, if you only choose/help smart and energetic people when choosing business partners, then he may just be a smart and hard-working liar. Bad people with low morals will do more extreme things and may backfire.
Another reflection is risk control. In fact, Arthur did a good job in this regard. Although he invested in Luna, he did not suffer a big loss from Luna.
The rest of the story is just as told at the beginning.
Arthur raised the second round of funds, and many of the original LPs supported him.
Just like he said at the end: "If a person has personality problems, no matter how successful his project is, it is likely to collapse in a short time."
Maybe many of my friends are curious about him.
Looking back on his experiences, it may be Arthur’s integrity that has made him what he is today.
