@Arthur_0x is one of the most legendary DeFi investors, achieving a 100X return in less than three years. Now he has transitioned to secondary markets, and his performance remains impressive.

He shares trading insights that he has never shared publicly before.

Arthur entered the crypto field 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, serving as the vice president of the investment club, and was reported by Asian News Channel as one of the young investors.

After graduation, Arthur joined BP (British Petroleum) as a trader; the company is one of the largest oil commodity traders in the world, responsible for shipping, analysis, and trading functions, closely collaborating with traders and charterers to increase trading volume for the company.

Arthur became increasingly interested in blockchain, so he resigned from the international oil trading company where he was working. This commodity work experience helped him establish a relatively strict standard in crypto investing, allowing DeFiance to minimize losses during the FTX crash.

Later, he became a fundamental investor and focused on the potential use cases of cryptocurrencies beyond speculation. This led him to deeply research DeFi in early 2019 and take advantage of the opportunities brought by DeFi Summer.

Now he is the founder of @DeFianceCapital. Previously, he was involved in both primary and secondary investments. The current fund mainly focuses on the secondary market, and he is also a KOL with over 100,000 followers.

Arthur said, “In my journey to becoming an investor, I gradually explored my investment philosophy. Every investor has their own investment philosophy, such as Buffett, who represents the long-term value investment philosophy. Once your investment philosophy is formed, you will start searching for investment strategies that suit you. These strategies will adjust according to market conditions, but the core philosophy usually doesn’t change easily.”

Through these experiences, he realized that successful investing requires not only keen insight but also the ability to continuously learn and adapt to the market.

What is Arthur’s growth experience?

In the process of growing into an investor, he found that everyone has similarities in exploring investment philosophies.

Usually, everyone first encounters stock investment from a fundamental perspective. However, in the past 10-15 years, he has observed that the importance of the U.S. stock market has been increasing, becoming the only market globally with long-term substantial growth. Other markets, such as Europe and Asia, have not experienced similar bull markets. So not all markets will have long-term growth; it depends on the fundamentals of the entire market.

The second is the declining popularity of value investing. Narrowly defined value investing, which means stocks with high PE ratios, has performed poorly in the last 10-15 years. What has performed well are investments in growth stocks, such as technology stocks. He also tends to invest in these types of growth projects.

If you want to achieve returns that exceed the market, the key is to discover projects that can surpass the market growth rate earlier than the market does. This is the key to obtaining alpha returns.

Arthur believes cryptocurrencies are well-suited for this global investment strategy because they are globalized assets. If a crypto project finds the right market positioning, its growth can be realized globally.

This is also one reason why companies in the United States and China can succeed; they can quickly expand in a large market. In regions like Southeast Asia, expansion is more challenging due to market complexities.

Thus, Arthur gradually formed his investment philosophy.

DeFiance Capital's investment strategy revealed

Arthur said, “Our scale is roughly in the eight to nine-figure range.”

Then the strategy is typically a fundamental-oriented approach to selecting coins for investment. “Of course, we mainly select relatively small to medium-sized coins.”

Bitcoin and Ethereum will not be our main investment direction because our investment goal is to outperform beta, where beta refers to Bitcoin and Ethereum.

When we started in 2020, we were DeFi-focused; after that, as long as we believed a sector had potential for growth, we would invest. Last year, we also invested in many AI projects, and gaming has been a consistent area of investment.

Someone asked Arthur, “How do you ensure that you know everything?”

He admitted, “I think this can only be achieved by spending time. This is actually a threshold; as long as you are willing to invest this time, everyone can reach a level where they can invest in a relatively short period, though you can’t expect to understand it as deeply as a technician.”

But I think as a good investor, you don’t need to have that understanding to invest; you just need a basic understanding to start investing.

Advice for newcomers

How to quickly understand a new sector? His answer is unique.

Arthur said his method consists of three steps.

The first step is to assess whether there exists a degree of integration between this sector and Crypto. He believes this is something he learned in 2017. Sometimes people forcefully apply certain applications to blockchain, but the degree of integration between the two may be very low.

The second step is to assess the potential for rapid growth. Since we all tend to be a bit impatient, if some sectors take a long time to ramp up, people may not have that much patience.

The last step is data. Do you have data to support your viewpoint? If you are optimistic about this track, then you should prepare some data to back it up, and you need to give yourself some time to make a judgment.

You say you are optimistic about this track, so I might expect to see some data in three to six months to support this optimism. If after six months that data hasn’t materialized, then you need to reassess your view.

Learning from others’ mistakes is wisdom; learning from your own mistakes is intelligence.

What are the investment lessons from DeFiance Capital?

During the operation of his last fund, due to some irresistible forces, a new fund was launched between 2020 and 2023.

Many LPs who previously supported Arthur expressed strong support for the establishment of the new fund and invested funds accordingly. This resulted in the recent fund performing quite well.

During this process, Arthur reflected on his experiences and believed that there are many useful lessons for businesspeople. He pointed out that there are many opportunities in the investment industry, and the barriers to entry are relatively low. However, this industry also has its difficulties, as many things are still immature and easy to speculate on.

Arthur mentioned that in the past 5 to 7 years of industry history, the key to success has been 'survival.' As long as you don’t fail, you can be considered a relatively successful investor.

In the investment process, in addition to market risk, two main risks need attention:

First is custody risk. He believes that when managing other people’s funds, there must be good custody operations. Recently, some exchanges were hacked, resulting in losses of hundreds of millions, which is unacceptable in 2024. Investors should not spend too much energy on custody but should use the top custody services in the industry to solve this issue.

Second is counterparty risk, including exchanges and the projects themselves. Some people lack imagination regarding these risks, as they usually have an optimistic outlook towards the future. However, once problems arise, such as borrowers defaulting or exchanges collapsing, investors can face significant losses. He reminds everyone to conduct proper risk assessments and not easily trust promises from project parties.

Arthur said he has lost money in custody and counterparty risk. Starting in 2022, they discovered an imbalance in the market: too many venture capital (VC) funds emerged, but the market didn’t have enough liquidity to accommodate this capital. Particularly in the U.S., some large VC funds are far larger than the market can bear.

This instead provides opportunities for the secondary market, as the secondary market is highly volatile, and many LPs are unwilling to participate.

More and more quality projects go unnoticed after issuing tokens because VCs often focus on early-stage investments while neglecting subsequent operations. Therefore, Arthur wants to fill this market gap and provide support for projects that need help. The functions of VCs are becoming more diverse.

As the industry matures, how should retail investors respond?

When discussing this cycle compared to previous cycles, Arthur feels there are many 'watershed' events, such as the FTX liquidation and then the settlement between Binance and the U.S. government; he feels these are all milestone events.

“Of course, there will still be many unconventional approaches in our industry, but I think it will become increasingly difficult. That doesn’t mean it’s impossible.”

For instance, this year's performance shows that while Bitcoin reached all-time highs, many friends feel like they haven't made much money. This is because our various primary investments, as well as smaller coin positions, are generally larger than Bitcoin.

The biggest change is that the market is indeed moving towards a more institutional direction.

Then the largest exchanges in the industry have settled with the U.S. government. So they may face more operational restrictions in the future.

How to accurately judge the timing for entering and exiting positions?

A friend with VC asked, “I often look at your LP reports, and first, they perform very well. Then in this process, there are many targets that you see but others may not see. You also have heavily invested tokens; however, the market liquidity is not that good. So how do you judge the entry and exit timing of specific targets?”

Arthur said this is indeed the hardest to accurately grasp.

Market timing is still very important for our circle. He believes there is no completely correct answer, and depending on market conditions, you also need to make relative adjustments, which they have always been doing.

So he thinks the biggest difference between this cycle and several previous cycles is: when you see fundamentally strong projects, you need to be more proactive in profit-taking.

“For this cycle, I really believe that the best profit-taking timing is actually no more than two months. It’s actually from mid-March to early April, just this one month is the best time for profit-taking. If you don’t take profits, it is still very easy to be far from that price level.

So, I think you need to look at the market, consider macro factors, look at market liquidity, trading volume, market sentiment, and also consider funding rates, positives, and negatives. In fact, we are always increasing the data we analyze to reach better allocation timing from a macro perspective.

From a fundamental perspective, Arthur will also examine the on-chain trading volume to see if there are significant buying and selling activities.

It also depends on the growth of the fundamentals. Sometimes he feels that from a fundamental perspective, many blockchain projects go from very low valuations to being highly overvalued in a short time. The AI sector is the best example.

Arthur thinks the AI sector was relatively undervalued last year. At that time, people were still quite conservative towards Crypto AI. But when the bull market arrived, speculation intensified significantly, with many things rising more than tenfold.

Experiences of DeFiance Capital making a fortune

According to Arthur’s recollection, the project with the highest peak return rate was @AxieInfinity, with a peak return rate of nearly 2000 times, with an investment cost of around 8 cents, and a peak price exceeding 160 dollars. Of course, it’s impossible to sell all at the peak because some tokens are still locked, and although the return rate is high, the investment amount was small.

When Axie raised funds for the first time, there were very few investors who believed in this track, and since it was a bear market at the time, that round of funding was less than 1 million dollars, so they didn’t invest much. However, in terms of return on investment, this project was the highest.

From the perspective of sectors, the most successful investment has been in DeFi. He entered this sector very early, so basically, the currently successful blue-chip DeFi projects are all invested in, such as dYdX, Sushiswap, AAVE, YFI, Synthetix, etc.

DeFiance Capital also performed well in the secondary market. In the early days, many DeFi projects did not have so-called seed rounds, and if one wanted to invest, they could only do so by purchasing tokens or participating in liquidity mining. Many of the projects just mentioned, such as YFI, Synthetix, and Sushi, were investments in the secondary market.

Lessons learned from the Terra and FTX incidents

After these events, Arthur will have higher ethical requirements for the team, referred to as integrity in English. If a person has character issues, no matter how successful their project is, they can collapse in a short time.

The industry has experienced many similar events. Individuals and institutions, like Luna and FTX, that once dominated the industry fell due to character issues and moral breaches, rendering their grand achievements meaningless for investors unless they were pursuing short-term gains.

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 a smart and hard-working crook who’s eventually going to cheat you.

This means if you only choose smart and energetic people when selecting business partners, he may just be a clever and hardworking fraud. The actions of morally deficient bad people can be more extreme and may backfire.

Another reflection is on risk control, in which Arthur has done quite well. Although he invested in Luna, he did not suffer significant losses on it.

The following story is just as mentioned at the beginning.

Arthur raised a second fund, and many original LPs supported him.

As he said in the end: “If a person has character issues, no matter how successful their project is, they can collapse in a short time.”

Perhaps many friends are curious about him.

Looking back at his experiences, perhaps it is Arthur's integrity that has contributed to his success today.