@Arthur_0x is one of the most legendary DeFi investors, achieving 100X in less than three years. Now transitioning to the secondary market, his performance remains impressive.

He has never shared his trading principles before, but they are here?

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 and served as the vice president of an investment club, being reported by Asian News Channel as one of the young investors.

After graduation, Arthur joined BP (British Petroleum) as a trader, 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 worked at the time. This experience in commodities helped him establish a relatively strict standard in crypto investments, allowing DeFiance to minimize losses during the FTX collapse.

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

He is now the founder of @DeFianceCapital. Previously, he engaged in both primary and secondary investments, and his current fund mainly focuses on the secondary market. He is also a KOL with over 100,000 followers.

Arthur said: 'In my growth as an investor, I gradually explored my investment philosophy. Every investor has their own investment philosophy; for example, Buffett represents the idea of long-term value investing. Once your investment philosophy is formed, you will begin to seek investment strategies that suit you. These strategies will be adjusted according to market changes, but the core philosophy typically does not change easily.'

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

What was Arthur's growth experience?

In his growth as an investor, he found that everyone has similarities in their exploration of investment philosophy.

Typically, people first encounter stock investments from a fundamental perspective. However, in the past 10-15 years, he has observed that the importance of the U.S. stock market has grown, becoming the only market in the world with a long-term upward trend. Other markets, such as Europe and Asia, have not seen similar uptrends. Therefore, not all markets will experience long-term growth; the key is to look at the fundamentals of the entire market.

The second point is that the popularity of value investing is declining. Narrowly defined value investing, such as high PE stocks, has performed poorly in the last 10-15 years. Better-performing investments are in growth stocks, like tech stocks. He also tends to invest in such growth-oriented projects.

To achieve returns that surpass the market, the key is to discover projects that can exceed the market growth rate earlier than others. This is the key to obtaining alpha returns.

Arthur believes that cryptocurrencies are very suitable for this global investment strategy because they are global assets. If a crypto project finds the right market positioning, its growth potential can be realized worldwide.

This is also one reason why companies in the U.S. and China can succeed; they can expand quickly within a large market. In contrast, in regions like Southeast Asia, expansion becomes more challenging due to market complexity.

Thus, Arthur gradually formed his own investment philosophy.

DeFiance Capital's investment strategy revealed

Arthur stated, 'Our size is probably between eight and nine figures.'

Then the strategy typically involves a fundamental approach to selecting coins for investment. 'Of course, we mainly choose relatively small and medium-sized coins.'

Bitcoin and Ethereum are not our main investment directions because our investment goal is to outperform beta, where beta refers to Bitcoin and Ethereum.

When we started in 2020, we were rooted in DeFi, and we aim to invest whenever we believe a track has potential growth capability. Last year, we also invested heavily in AI, and gaming has always been an area of investment for us.

Someone asked Arthur, 'How do you ensure you understand everything?'

He admitted, 'I think this can only be achieved with time. This is a threshold; as long as you are willing to spend this time, everyone can reach an investable level in a relatively short time, though you cannot expect to understand it as deeply as a technical expert.'

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

Advice for newcomers

How to quickly understand a new track, his answer is unique.

Arthur stated that his method involves three steps.

The first step is to ascertain whether there is a connection between this track and Crypto. He believes this is something he learned in 2017. Sometimes people awkwardly try to apply this application to the blockchain, but the degree of integration may actually be very low.

The second step is whether there is potential for rapid growth. Since we are all a bit impatient, if some tracks take a long time to get going, people may not have that much patience.

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

When you say you are optimistic about this track, you should expect to see data supporting this positive outlook in three to six months. If after six months, this data has not materialized, you need to reassess your view.

Learning from others' mistakes is wisdom, while learning from one’s own mistakes is clever.

What investment lessons does DeFiance Capital have?

In the operation of its previous fund, due to some irresistible factors, this fund launched a new round between 2020 and 2023.

Many of the LPs who previously supported Arthur expressed strong support for the establishment of the new fund and invested funds accordingly. This led to a very good performance for the latest fund.

In this process, Arthur reflected on his experiences and believed that there are many useful lessons for business people. 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 because many things are still immature, and people are prone to speculation.

Arthur mentioned that in the successful key to the industry's history over the past 5 to 7 years has been 'surviving'; as long as you don't fail, you can be considered a relatively successful investor.

In the investment process, besides market risk, there are two major risks to be aware of:

One is custody risk. He believes that when managing others' funds, it is essential to have good custody operations. Recently, some exchanges were hacked, losing hundreds of millions, which is unacceptable in 2024. Investors should not spend too much energy on custody issues but should use the industry's top custody services to address this.

Secondly, there is counterparty risk, which includes risks from exchanges and the investment projects themselves. Some people lack imagination regarding these risks because they typically hold an optimistic attitude towards the future. However, once problems arise, such as borrowers defaulting or exchanges collapsing, investors face significant losses. He reminds everyone to conduct risk assessments and not to easily trust project promises.

Arthur mentioned that he has lost money in custody and counterparty risks. Since 2022, they have noticed an imbalance in the market: too many venture capital (VC) funds emerging, while the market does not have enough liquidity to absorb this capital. Especially in the U.S., some large VC funds are far larger than the market can bear.

This, in turn, provides opportunities for the secondary market because the secondary market is more volatile, and many LPs are unwilling to participate.

More and more high-quality projects are left unattended after issuing tokens because VCs often focus only on early investments and neglect subsequent operations. Therefore, Arthur aims to fill this market gap and provide support for projects in need. The functions of VCs are becoming more diversified.

As the industry matures, how should retail investors respond?

When discussing this cycle compared to previous ones, Arthur feels there are many 'watershed' moments, such as the FTX explosion and subsequent liquidation, as well as the settlement between Binance and the U.S. government, which he sees as milestone events.

'Of course, our industry will still have many unconventional methods, but I think it will become increasingly difficult; though, that doesn’t mean it’s impossible.'

For instance, this year's performance shows why Bitcoin reached an all-time high, while many friends feel like they haven't made much money. This is because our various primary investments, and those in small tokens, are usually larger than Bitcoin.

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

Moreover, the largest exchanges in the industry have settled with the U.S. government. Therefore, they may face more operational restrictions in the future.

How to accurately judge the timing for entering and exiting an investment?

A VC friend asked: 'I often read your LP reports. First, the performance is very good, and during this process, many targets are ones you saw but others may not have. You also hold tokens heavily, but liquidity in the market isn't great. So how do you determine the specific entry and exit timing for certain targets?'

Arthur said this is actually one of the hardest things to accurately grasp.

The timing of the market is still very important for our circle. He feels there is no completely correct answer, and depending on market conditions, you need to make relative adjustments, which they have been continuously doing.

Thus, he believes the biggest difference between this cycle and previous ones is: when you see fundamentally strong projects, you should be more proactive in profit-taking.

'In this cycle, I believe that the timing to really take profits is no more than two months. It is actually from late March to early April; this short month is the best time for profit-taking. If you don’t exit, it can be easy to drift far from that price point.'

Therefore, I think you need to look at the market macroscopically, observing market liquidity, trading volume, market sentiment, as well as funding rates, positives, and negatives. In fact, we will continuously increase the data we can analyze to better time our macro allocations.

Fundamentally, Arthur also looks at the on-chain trading volume, whether there are significant buy and sell transactions.

It also depends on fundamental growth. Sometimes he feels that from a relatively fundamental perspective, many blockchain projects have surged from very low valuations to overvalued positions in a very short time. The AI track is the best example.

Arthur believes that the AI track was relatively undervalued last year. At that time, people were still quite conservative about Crypto AI. But with the bull market, speculation began to escalate significantly, with many things rising more than tenfold.

DeFiance Capital's experiences of making huge profits

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

When Axie raised funds in its first round, there were very few investors who believed in this track, and since it was during a bear market, that round raised less than $1 million, so they didn’t invest much. However, in terms of return rate, this project had the highest.

From the track perspective, the most successful investment has been in DeFi. Having entered this track early, he invested in nearly all successful blue-chip DeFi projects, such as dYdX, Sushiswap, AAVE, YFI, Synthetix, and others.

DeFiance Capital has also performed well in the secondary market. In the early stages, many DeFi projects did not have a so-called seed round, so to invest, one could only purchase tokens or participate in liquidity mining. Many of the mentioned projects like YFI, Synthetix, and Sushi were investments in the secondary market.

Lessons learned from the Terra and FTX incidents

After these events, Arthur would demand a higher moral standard from his team, known in English as integrity. If a person's character has issues, no matter how successful their project is, they may collapse in a short time.

The industry has experienced many similar events; individuals and institutions like Luna and FTX once held significant influence in the industry but collapsed due to personal and ethical issues, breaking moral boundaries. For investors, such investments hold little significance unless one is pursuing short-term profits.

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 selecting business partners, they might just be a clever and hardworking fraud. The actions of morally corrupt bad people can be more extreme and may backfire.

Another reflection is on risk control, and Arthur has done quite well in this area. Although he invested in Luna, he did not suffer significant losses on that investment.

The story afterward is as previously mentioned.

Arthur raised a second batch of funds, and many of the original LPs supported him.

As he ultimately stated, 'If a person's character has issues, no matter how successful their project is, they may collapse in a short time.'

Many friends might be curious about him.

Looking back at his experiences, it may be Arthur's integrity that has led to his success today.