@Arthur_0x is one of the most legendary DeFi investors, achieving 100X in less than three years. Now he has transitioned to secondary investments and still performs remarkably.
The trading secrets he has never shared before are all 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, becoming the vice president of the investment club, and was reported by Asian news channels as one of the young investors.
After graduation, Arthur joined BP (British Petroleum) as a trader, which is one of the world's largest oil commodity traders, rotating through shipping, analysis, and trading functions, working closely 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 he was working for at the time. This experience in commodities helped him establish a relatively strict standard in crypto investments, minimizing losses for DeFiance during the FTX crisis.
Later, he became a fundamental investor, focusing on the potential use cases of cryptocurrencies beyond speculation. This led him to deeply study DeFi in early 2019, seizing the opportunities brought by DeFi Summer.
He is now the founder of @DeFianceCapital. Previously, he was involved in both primary and secondary investments, but his current fund mainly focuses on the secondary market. He is also a KOL with over a hundred thousand followers.
Arthur said, 'In the process of growing into an investor, I gradually explored my investment philosophy. Every investor has their own investment philosophy; for example, Buffett represents the philosophy of long-term value investing. 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 philosophy usually does not 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 like?
In the process of growing into an investor, he found that everyone has similarities in exploring investment philosophies.
Usually, people first encounter stock investment from a fundamental perspective. However, over the past 10-15 years, he has observed that the importance of the US stock market has been growing, becoming the only market with long-term significant rises globally. Other markets, like Europe and Asia, have not experienced similar bullish trends. Therefore, not all markets will have long-term significant rises; the key is to look at the fundamentals of the entire market.
The second is the declining popularity of value investing. Narrowly defined value investing, i.e., 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 tech stocks. He also tends to invest in these kinds of growth projects.
If you want to achieve returns that exceed the market, the key is to discover projects that can exceed the market growth rate earlier than the market. This is key to obtaining alpha returns.
Arthur believes that cryptocurrencies are well-suited for this global investment strategy because they are a global asset. If a crypto project finds the right market positioning, its growth potential can be realized globally.
This is also one reason why companies from the US and China can succeed; they can expand quickly in a large market. In regions like Southeast Asia, the complexity of the market makes expansion more difficult.
Thus, Arthur gradually formed his investment philosophy.
Insights into DeFiance Capital's investment strategy.
Arthur said, 'Our scale is roughly between eight and nine figures.'
Then a typical strategy is to choose coins for investment based on fundamentals. 'Of course, we mainly select medium to small-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 founded on DeFi, and thereafter, as long as we believe a sector has potential for growth, we will invest. Last year, we also invested a lot in AI, and gaming has always been a focus for us.
Someone asked Arthur, 'How do you ensure that you understand 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 spend this time, everyone can reach a level that allows them to invest in a relatively short period, although you cannot understand it as deeply as a technician.'
But I believe that as a good investor, you don’t need to have that awareness to start investing; you just need a basic understanding to begin 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 whether there is a degree of integration between this sector and Crypto. He believes this is something he learned in 2017. Sometimes, people are forced to apply an application to blockchain, but the degree of integration may actually be very low.
The second step is whether there is potential for rapid growth. Because we all tend to be a bit impatient, if a sector takes 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 sector, prepare some data to back it, and you need to give yourself some time to make a judgment.
You say you are optimistic about this sector, so I might expect to see some data in three to six months to support that view. If that data does not materialize after six months, you should reassess your view.
Learning from others' mistakes is wisdom; learning from your own mistakes is clever.
What investment lessons does DeFiance Capital have?
In the operation of its previous fund, due to some force majeure reasons, this fund launched a new round between 2020 and 2023.
Many LPs who previously supported Arthur have expressed strong support for the establishment of the new fund and have invested funds. This has led to a relatively good performance of the recent fund.
In this process, Arthur reflected on his experiences, believing that there are many useful lessons for business people. He pointed out that there are many opportunities in the investment industry with relatively low entry barriers. However, this industry also has its challenges, as many aspects are still immature and subject to speculation.
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, there are two main risks to be aware of:
First is custody risk. He believes that when managing other people's funds, there must be 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 but should use the top custody services in the industry to solve this problem.
The second is counterparty risk, including exchanges and the investment projects themselves. Some people lack imagination regarding these risks because they typically hold an optimistic view of the future. However, once problems arise, such as borrowers not repaying loans or exchanges collapsing, investors face significant losses. He reminds everyone to conduct adequate risk assessments and not to easily trust promises from project parties.
Arthur said he has lost money in both custody and counterparty risks. Since 2022, they found an imbalance in the market: too many venture capital (VC) funds emerged, while the market did not have enough liquidity to absorb these funds. Especially in the US, some large VC funds are far larger than what the market can bear.
This actually 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 have gone unnoticed after releasing tokens because VCs often only focus on early investments and neglect subsequent operations. Therefore, Arthur wants to fill this market gap and provide support for projects that need help. The role of VCs is becoming more diversified.
As the industry matures, how should retail investors respond?
When discussing the significant events that mark the changes in this cycle compared to previous ones, Arthur believes there are many 'watershed moments,' such as the FTX collapse and subsequent liquidation, and the settlement between Binance and the US government; he thinks these are all milestone events.
Of course, there will still be many unconventional plays in our industry, but I think it will become increasingly difficult, although it’s not impossible.
For example, this year's performance is why Bitcoin reached an all-time high while many friends feel like they haven't made much money. Because our various first-tier and smaller coins typically have larger positions than Bitcoin.
The biggest change is that the market is indeed moving in a more institutional direction.
And the largest exchanges in the industry have reconciled with the US government. So they may have more operational restrictions in the future.
How to accurately judge the entry and exit timing of targets?
A VC friend asked: 'I often review your LP reports, which first perform very well, but during the process, there are many targets that you have seen that others may not have. You also have heavily invested tokens, but the market liquidity isn't that good, so how do you judge the entry and exit timing of specific targets?'
Arthur said this is actually the most difficult to accurately control.
Timing in the market is still very important for our circle. He believes there is no completely correct answer, and you also need to make relative adjustments based on different market conditions, which they have always been doing.
So he thinks the biggest difference between this cycle and several previous cycles is: you see fundamentally strong projects, and in terms of profit-taking, you need to be relatively proactive.
'In this cycle, I believe that the truly good profit-taking opportunities do not exceed two months. It's actually from late March to early April; in this short month is the best time for profit exits. If you don't exit, it’s still easy to drift far from that price level.'
So, I think you need to look at the market; have a macro view, observe market liquidity, trading volume, and market sentiment, and also consider funding rates, positives, and negatives. In fact, we will continuously increase the data we can analyze to reach a better allocation timing from a macro perspective.
In terms of fundamentals, Arthur will also look at the on-chain trading volume to see if there are significant buy and sell activities.
You also need to look at the growth of the fundamentals. Because sometimes, from a fundamental perspective, many blockchain projects can go from very undervalued to very overvalued in a short time. The AI sector is a prime example.
Arthur feels that the AI sector was relatively undervalued last year. Because at that time, everyone was still quite conservative about Crypto AI. However, once the bull market arrived, everyone started to hype it up significantly. Many things surged by more than ten times.
Experiences of DeFiance Capital making significant profits.
According to Arthur's recollection, the project with the highest peak return rate was @AxieInfinity, with a peak return rate close to 2000 times, the investment cost was around 8 cents, and the highest price exceeded $160. Of course, it was impossible to sell all at the highest point because some tokens were still locked, and although the return rate was high, the amount invested was relatively small.
When Axie raised its first round of funding, there were very few investors believing in this sector, and since it was during a bear market, the total funding for that round was less than $1 million, so they didn't invest a lot. However, in terms of return rate, this project has the highest.
From the perspective of sectors, the most successful investment has been in DeFi. He entered this sector very early, so it seems that most of the currently successful blue-chip DeFi projects have been invested in, such as dYdX, Sushiswap, AAVE, YFI, and Synthetix.
DeFiance Capital has also done very well in the secondary market. Because in the early days, many DeFi projects did not have so-called seed rounds; to invest, one could only buy 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 events.
After these events, Arthur has a higher requirement for the team's integrity. If a person's character has issues, regardless of how successful their project is, it can collapse in a short time.
The industry has experienced many similar situations; individuals and institutions like Luna and FTX, which once wielded significant influence in the industry, collapsed due to character issues and ethical breaches. For investors, such investments hold little significance unless you are 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.
That is to say, if you only choose smart and energetic people when selecting business partners, he may just be a clever and hardworking crook. The actions of morally bankrupt bad people will be more extreme and may backfire.
Another reflection is on risk control; Arthur has done well in this regard. Although he invested in Luna, he did not incur significant losses from it.
The story that follows is just as mentioned at the beginning.
Arthur raised a second batch of funds, and many original LPs supported him.
As he said at the end: 'If a person's character has issues, regardless of how successful their project is, it can collapse in a short time.'
Many friends may be curious about him.
Looking back on his experiences, it may be Arthur's integrity that has led to his success today.
