How does the head of CoinSummer at Shenyu Family Office allocate assets during this cycle?

This issue of the dialogue with traders features my old friend @SaulDataman. The main reason I wanted to chat with him is that I believe the next cycle may involve purely investing in primary and secondary markets, or that secondary investments may only be about Buy & Hold, which is no longer sufficient. We need to focus on many enhanced strategies, including mining, quantitative trading, and so on. As a representative of "Old Money" in the crypto space, their asset allocation strategies are ahead of the curve. Of course, in addition to asset allocation, @SaulDataman also shared in detail their entire process of participating in mining, from project selection to actual operation, which I found to be very helpful information. As usual, I will summarize some key points here.

All text is for sharing purposes only and does not constitute any investment advice.

TL;DR

I. About Trader Saul Dataman and CoinSummer

Saul Dataman's "Crypto Journey"

1) What was he doing before entering the crypto space?

Before 2016, he was a programmer in the Bay Area and participated in some startups. In 2016, he returned to China, wanting to start a business in Web2, but due to the strong monopoly of oligarchs at that time, his entrepreneurial attempts were not ideal, so he sought new opportunities.

2) What did he do after entering the crypto space?

He had heard of Bitcoin while in the Bay Area but did not study it in depth. In 2017, he refocused on this market due to ICOs and decided to participate, creating an on-chain data analysis tool. In 2018, he accepted an invitation from Shen Yu to lead CoinSummer Labs, using his technical background to assist the team with trading, mining, and investment decisions.
CoinSummer Labs initially focused on secondary investments in the crypto market. During the DeFi Summer of 2020, they began actively participating in DeFi mining, seeking more Alpha yield opportunities from the market, and it was at this stage that they also started primary investments.
CoinSummer Labs aims to be a team that can continuously navigate the front lines of crypto, remaining sensitive to market changes and responding quickly. They adapt to various market changes through rapid trial and error, continuous iteration, and ongoing learning, serving Shen Yu and the team's long-term asset allocation needs, as well as other sister companies.

3) Why choose to go All in Crypto?

@SaulDataman quoted a viewpoint he strongly agrees with: "If you don't understand super-linear returns, you can't understand this world." Super-linear returns can be attributed to two fundamental reasons: the first is exponential growth, and the second is the threshold principle. Crypto is undoubtedly a field where we can participate and attempt to achieve super-linear returns, as many of its characteristics provide us with opportunities for practice and leverage.

What are the characteristics of Crypto? First, there is a lot of knowledge in Crypto, requiring participants to continuously learn. Saul Dataman, coming from a technical background, found that his knowledge structure was insufficient to support investment and trading in this market, necessitating continuous learning in areas such as financial knowledge, macroeconomics, investment theories, and frameworks, which involves stepping into many pitfalls and paying tuition fees—this reflects the "threshold." Second, Crypto has many innovations, and the iteration speed is very fast, which reflects "exponential growth."
In terms of the application curve of development, Crypto is currently in the 20%-40% stage, still very early, so current participants are already ahead of many others. Additionally, the organizational structure of Crypto is highly decentralized, with many individuals or small teams acting as units, each with different focuses, and everyone is a multi-talented individual. These are the foundations that allow participants in the Crypto market to achieve super-linear returns.
In the face of explosive information, rapid growth, endless innovations, and significant uncertainties, participating in Crypto requires a spirit of adventure and exploration, driven by curiosity to engage in new innovations, reforms, and practices. Through continuous learning and accumulation, one should quickly reach the so-called "threshold" in various dimensions to welcome subsequent "exponential growth" and attempt to achieve "super-linear returns."

4) What is the vision of himself/organization?

The CoinSummer Labs team consists of Bitcoin Maximalists who greatly admire the vision depicted in Satoshi Nakamoto's white paper and strive to see this vision realized. If successful, they will have participated in a great financial innovation; if they fail, they will have participated in a great social experiment.

Saul Dataman/CoinSummer's Trading Strategy

1) Trading Style and Allocation

The overall style is conservative, pursuing the benefits of long-term compounding, ultimately aiming to get as close as possible to the goal of "earning while lying down."
The core holdings are Bitcoin and Ethereum, with the remainder focused on mining and arbitrage, supplemented by event-driven strategies and subjective trading.
Regardless of the size of the capital, there is one principle: no more than 10% of a protocol will be occupied.

2) Expected Returns and Capital Cycle

They pursue long-term stability, relatively low risk, and compounding returns, so the expected return is simply to be above the market average, which is primarily the average yield of a certain asset across different protocols.
For assets that are not frequently traded, they choose a capital cycle of over six months; for more volatile assets or newly emerging assets (with insufficient FDV/liquidity), the capital cycle will be shorter, and they generally use lending methods to ensure control over the assets.

II. Saul Dataman's Trading Experience: What Can Be Directly Reused and What Absolutely Should Not Be Done

How to Participate in Yield Farming Safely?

For Yield Farming, the overall principle is safety > liquidity > yield. The entire process is roughly as follows:

1) Establishing an observation list and opportunity list through information gathering and project evaluation.

Utilize AI tools to gather, summarize, and categorize market information, generating an AI daily report, which everyone can subscribe to at https://substack.com/@coinsummer. The information includes changes in on-chain data (TVL, number of addresses, etc.), capital flows, newly emerging projects, etc.
The AI-categorized information is then combined with project information learned offline and distributed to researchers/analysts focusing on different sectors, forming an observation list.
Evaluate the protocols on the observation list to make a basic judgment on whether they are worth mining. The evaluation dimensions include CoinSummer's own valuation model, horizontal comparisons with similar protocols, project due diligence, project potential, etc. Checkpoints are set for data anomalies, including TVL surges (reaching second place), income reaching certain thresholds, and activity levels meeting certain standards, which determine whether a protocol can enter the opportunity list.
For protocols that enter the opportunity list, the next step is to assess risks specifically and decide whether to participate.

2) Preparations before mining: Security review and mining strategy formulation.

First, review the protocol's audit report, which includes contract design and security risk checks conducted by professional security teams. After internal review, external security work will be conducted for further examination.
After the security review, protocols will be classified; high-risk ones will generally not be touched, while medium-risk ones will attempt to implement some risk "supplements and guarantees." For example, some protocols may have time locks that are too short or multi-signatures controlled by themselves. In such cases, they will contact the team to see if modifications are possible or have a security company provide guarantees, such as monitoring changes to contracts.
During the security review process, the mining strategy will be formulated simultaneously, deploying small amounts for testing and running through the process. Once the security review is passed, funds will be formally deployed.

3) Continuous monitoring after deploying funds.

During monitoring, many tools will be used, mainly divided into several types: automated trading tools, data analysis tools, monitoring and alert tools, and some dashboards. In the monitoring and alerting section, there is a product that can push alerts based on customized conditions. The alert channels vary by urgency, including phone calls, multi-channel messaging, or emails. This product is now also available for external use at chainbot.io, and many DeFi mining enthusiasts and large holders are using it.
Once monitoring alerts are triggered, contingency plans will be activated to withdraw funds as quickly as possible to protect asset safety.
Cobo has some tools that are very useful for mining: first, Cobo Argus, which is a module built on Gnosis Safe (a multi-signature safe) that has implemented some ACL decentralization functions, allowing some single-signature wallets to control specific actions of assets in multi-signature wallets, such as staking, withdrawing, claiming rewards, etc. At the same time, automated programs can perform specified actions based on trading signals or on-chain behaviors, such as emergency LP withdrawals; second, MPC, which is suitable for relatively low-frequency mining operations. If it is a relatively high-frequency situation or requires splitting across many wallets, private key management is necessary, using technical means such as HSM to manage private keys and then controlling transactions through programs.

How should different capital sizes participate in Yield Farming?

Shen Yu previously wrote an article about how beginners can turn $1,000 into $100 million in the blockchain industry, https://x.com/bitfish1/status/1751178173847580866. In this regard, @SaulDataman added his views and provided mining suggestions for various capital sizes.

1) Under $100,000

For capital sizes under $100,000, I want to quote a description from Liang Fen Xiao Dao, which is about picking up water bottles in the crypto space. The goal is to collect as many of these water bottles as possible, which can actually accumulate the first bucket of gold. Here, mining is more about using small funds for some interactions, or what is called "yield farming."

2) $100,000 to $1,000,000

At this stage, Shen Yu's advice is to find some potential projects based on the time machine principle to acquire chips at low prices. This process of acquiring chips at low prices actually contains some mining logic. For example, there are some new chains, L2s, or some chains that are not as active as during their peak periods, where new protocols are emerging that are worth participating in. For instance, the recent Ethena and the Lista protocol on BSCBIC are quite suitable for everyone to mine.

3) $100,000 to $10,000,000

At this stage, Shen Yu mentioned choosing a base asset and making some appropriate trades, advising against shorting. In terms of mining, there are already many options for capital, allowing for flexible use of low-leverage on-chain lending protocols. A good strategy during this cycle is to collateralize Bitcoin, borrow Ethereum, and then earn yields through Eigenlayer and the Restaking LRT protocol. It's important to consider liquidity in this process, as many protocols have withdrawal restrictions. Therefore, one must think about whether it's acceptable to sell at a discount if an urgent exit is needed or if there are conditions to return the assets, so it's crucial to formulate a strategy before mining.

Shen Yu also mentioned that during this stage, one should observe more and engage in arbitrage, as there are quite a few arbitrage opportunities. For example, the recent decoupling of WBTC and the short-term decoupling of reETH were both good opportunities for arbitrage trading. At this stage, mining and arbitrage can help you achieve a stable cash flow.

4) Above $10 million

For amounts above $10 million and up to $100 million, I believe one should start following the principles of asset allocation, only using a portion of the assets for mining, such as allocating $1 million to $10 million, applying the logic from the previous capital range.

What is the Stop Doing List?

The biggest takeaway from the past year is to strictly execute one's trading strategy, including mining strategies. For example, CoinSummer received many airdrops from a protocol, and the trading strategy was to sell the airdrops if the protocol reached a certain market cap or expected yield. However, the actual situation was that the target was never reached, leading to more hope for the project, believing it might grow after selling pressure, which is actually a mistake. Mining activities and subsequent trading actions are two independent events and should not be considered together.

A few more points include: avoid high leverage; do not short if bearish; and when there is some FUD about a protocol or if there are security risks, it is essential to ensure timely withdrawal to protect assets.

III. Must-Read by Saul Dataman

Recommended Content
Recommended Bloggers:
Shen Yu is quite insightful, providing industry perspectives for crypto enthusiasts and conducting in-depth research in many areas of interest, such as anti-aging.
FC and sevenX are very professional in both primary and secondary markets and are very sensitive to market changes.
Luyaoyuan, a good comrade from the DeFi summer mining days, selflessly shares and independently analyzes various aspects of projects, with a comprehensive market perspective. Currently focused on secondary markets: https://x.com/Luyaoyuan1
yuyue, a representative of the new generation born in the 2000s, for those wanting to understand the dynamics and thoughts of the industry’s youth: https://x.com/yuyue_chris

A model of professional institutions with a comprehensive market perspective, linking primary and secondary markets.

Favorite Trader:

Ray Dalio, not sure if he qualifies as a trader, but his immense influence in the investment field and outstanding trading record make him widely respected.

Experience: After graduating from Harvard Business School, he entered the investment field, and Bridgewater's "All Weather" strategy has inspired us greatly.

Dalio's Investment Philosophy:

Principles First: He emphasizes guiding decisions through clear principles, believing that transparency and systematic thinking are keys to success.
Diversification and Risk Balancing: He advocates for global diversification in investments to spread risk and uses hedging strategies (like the "All Weather" portfolio) to balance portfolio volatility.
Understanding the Economic Machine: He views the economy as a machine, and understanding its mechanisms is fundamental to predicting market trends.

Dialogue Record

Today we invited Teacher SD, the head of CoinSummer from Shen Yu's family office, to discuss how to allocate assets in this cycle. The main reasons for the invitation are as follows: first, Teacher Shen Yu has a prediction that there will be no altcoin bull market this round, which left me feeling disheartened after reading it; second, you are also our LP, and I believe you are ahead of us in many aspects of asset allocation. The next cycle may involve purely investing in primary and secondary markets, or secondary investments may only be about Buy & Hold, which may no longer be sufficient. We need to focus on many enhanced strategies, including mining, quantitative trading, etc. I also talked to many family offices in Singapore, and they are quite impressive, buying Bitcoin at low points and then continuously mining with it, yielding good returns. So I was motivated to understand how the Old Money in the crypto space allocates assets. That's the logic behind it. Before we start, could you briefly introduce your background? Including the general logic of CoinSummer?

Saul Dataman

No problem, first of all, thanks to Teacher FC. Teacher FC is my skiing buddy; we met while skiing. I appreciate him inviting me to participate in their space. Initially, he tricked me into coming to chat casually, but I found there were many classmates here, and I was quite nervous because this is my first time on space. I saw that many professional traders in your previous spaces provided excellent analyses, so if I say anything inappropriate today, please bear with me.

First, let me introduce myself. My name is Saul Dataman, the distant cousin of Saul Goodman, the shady lawyer from Breaking Bad, and I am also the chief jack-of-all-trades at CoinSummer. All the chat and sharing today represent my personal views and do not reflect Shen Yu's views, nor do they constitute any investment advice.

Let me introduce CoinSummer. We were established in 2018, and this is our sixth year, which means we have experienced a complete bull-bear cycle and two half cycles, assuming we are currently in the middle of a bull market in this cycle. The organization originated from Shen Yu asking me to help him and his other companies, and gradually we formed this team, which is currently divided into two teams: investment research and technology.

When we were founded, it was actually during the latter half of the 2017 ICO bull market, as the market was declining. At that time, we focused on some trading opportunities in the secondary crypto market. One of the main reasons I was brought in was my background as a programmer and my experience in Web2 startups, which allowed me to contribute a lot through technology and data analysis, including AI technologies that were then referred to as machine learning or some NLP to assist us in trading and mining. Mining at that time included POW, POS, and also assisted in investment decisions. From that point on, we also began to make some strategic primary market investments to gather more market information and support some promising long-term projects.

During the DeFi Summer of 2020, we discovered new trends and application scenarios in crypto, which I believe is a remarkable innovation and paradigm shift. Therefore, we began actively participating in DeFi mining, attempting to find or obtain more Alpha yield opportunities from the market. At that time, we also invested in some outstanding performers in the crypto market, including well-known VC funds, with SevenX being one of them. Our positioning is to have a team that can continuously navigate the front lines of crypto, remaining sensitive to market changes and responding quickly. We adapt to various market changes through rapid trial and error, continuous iteration, and ongoing learning, serving the long-term asset allocation needs of our boss Shen Yu and our team, as well as other sister companies. We are essentially a group of Bitcoin Maximalists, which can also be understood as long-term bulls, who greatly admire the vision depicted in Satoshi Nakamoto's white paper and strive to see that vision realized. If we succeed, we will have participated in a great financial innovation; even if we fail, we will have participated in a great social experiment. This is the general background of CoinSummer Labs' establishment.

And what about you personally?

Saul Dataman

I returned to China in 2016. Before that, I was a programmer in the Bay Area, where I participated in some startups. After returning, I wanted to start my own business and tried some things in Web2, but it wasn't very ideal. I felt that the market environment and the oligarchs' monopoly were too strong, making it unfriendly for startups, so I sought new opportunities. While in Silicon Valley, I had seen some Bitcoin-related things but regretted not studying them properly, including not reading the white paper thoroughly, which is something I deeply regret in my life. However, in 2017, I revisited Bitcoin and the ICO situation, and I felt that I should participate. Before that, I had attempted to create something similar to Nansen, developing an on-chain data analysis tool during the 2017 ICO boom. This tool is something we at CoinSummer have been continuously using and will be detailed later.

Could you briefly introduce CoinSummer's current scale, your strategies, your yield targets, how you manage risk, and what this cycle looks like?

I think before sharing investment strategies, I should first explain why we are all in crypto, especially since many of our friends are fully engaged in it. I want to share this perspective. I believe that without understanding superlinear returns, one cannot grasp the entire world. Superlinear returns can be attributed to two fundamental reasons: the first is exponential growth, and the second is the threshold principle, which we refer to as the threshold. In this process, small differences can lead to huge outcomes. Crypto is undoubtedly a field where we can participate and attempt to achieve superlinear returns, as many of its characteristics provide us with opportunities for practice and the potential to amplify this leverage.

Firstly, crypto requires continuous learning of a lot of knowledge, which also answers your previous question about why I originally worked in technology and now I am here doing some investment and trading. It’s because once I entered the crypto space, I realized that my knowledge structure was insufficient to support investment or trading in crypto. There are many things that require us to keep learning, possibly needing to learn more financial knowledge, more macroeconomic concepts, and some investment theories and frameworks, and we have to step on many landmines and pay a lot of tuition. That’s the first point.

The second point is that crypto has a lot of innovations, and its iteration speed is very fast. There could be 800 directions in a day; during DeFi Summer, there were 10 new protocols launched in a day, and each of these protocols was different and very interesting. Therefore, our participation in these things is primarily driven by a spirit of adventure and exploration, fueled by curiosity rather than a career-driven motivation. We are not just doing a simple job here; rather, our curiosity drives us to engage in many new innovations, reforms, or practices.

Everyone in the crypto industry has already gained significant advantages. In terms of the adoption curve of a developing phenomenon, we might currently be in the 20%-40% stage, which is still very early, having already outpaced many others, with even half of the people not yet having been exposed to it. Additionally, the organizational structure of crypto is very decentralized. The decline in the importance of traditional organizations, along with the explosion of different types of information, has actually provided individuals with opportunities to achieve superlinear returns. Many friends, whether alone or in small groups, can act as a team with different focuses, and each person is a versatile player. Therefore, we have the foundation or the opportunity to achieve superlinear returns.

Returning to the question you just asked, for our team, first of all, we have some funds from Shen Yu himself, and our team has some funds as well. The scale can vary; sometimes he invests quite a bit in wild mining, but we have a principle: we will not occupy more than 10% of a protocol.

This principle is quite rare; being limited to 10% is quite restrained.

Saul Dataman

Yes, it depends on the situation. We have many strategies. In the past two years, we have mainly focused on mining and arbitrage, along with some event-driven strategies and a portion of subjective trading as support. Of course, as you mentioned, there are many ways to enhance returns, which can be elaborated on. In terms of asset allocation, we first have a portion of the base assets, which mainly consist of Bitcoin and Ethereum. For us, the overall style can be summarized as seeking stability and pursuing the returns brought by long-term compounding, ultimately getting as close as possible to our long-term goal of making money while lying down.

The question you asked earlier was about expected returns, risk acceptance, and capital cycles. I believe this is actually determined by the proportion of asset allocation. For example, aside from the base assets, we might allocate 50% of the remaining portion to participate in mining, while the other 50% could be used for some long-term arbitrage strategies or staking strategies. Today, there are actually a few keywords: one is traversing bull and bear markets, and the other is asset allocation. Let’s take a few strategies as examples.

A few months ago, or it should be about half a year ago, starting from last November, during the mining process of EigenLayer, our research team first conducted an overall assessment of this matter, believing that the narrative made sense and that it was a good innovation. Especially regarding AVS, I personally think it is a significant innovation that allows previously staking nodes, which could only ensure chain consensus and verify transaction hashes, to do much more. For example, the AVS architecture allows the program running in your operator to perform some off-chain data verification or storage. Some of the things Eigen DA does are also very interesting; it breaks down some data, stitches it together, and performs verification, achieving a DA axis. It can turn many things into authoritative data, so we believe that first, this concept is good. Second, it adds another layer of yield on top of Ethereum's staking returns, making it worthwhile for us to participate.

So how do we participate? We need to conduct some analysis, and gradually we have these LRT protocols, which are restaking protocols. Different protocols have different approaches and methods of implementation. For example, some protocols allow staking providers to manage all assets, while others attempt to decentralize their nodes using DVT or TE technologies. Based on these different protocols, we first analyze and use some models for calculations. We believe that at that time, EigenLayer's valuation or development gave us a rough FDV expectation, and we estimated that based on the average level in the market, the airdrop ratio was about three to five points. Therefore, our calculations suggest that EigenLayer's own token rewards are actually the most valuable. Other protocols, due to different mechanisms, might dilute EigenLayer's tokens, possibly leading to a shared benefit, and some different LRT protocols have different valuations and expectations, with varying listing/TGE times. Thus, we actually allocate most of our funds to stake in the EigenLayer protocol using native Eigenport, while distributing another portion of funds in LRT, with the principle being to allocate more to those we are more optimistic about and less to those we are relatively less optimistic about.

For expected returns, since we pursue long-term stable returns with relatively low risk that can generate compounding, I believe that as long as the expected return is above the market average, it is acceptable. The market average mainly refers to the average yield of a certain asset class across different protocols at that time, rather than the highest yield, as the highest yield may carry relatively high risks. Regarding the allocation of capital cycles, for assets that do not require frequent trading, we might choose a capital cycle of over six months without any issues. However, for some assets, such as those with high volatility or new assets with insufficient FDV or liquidity, we might have a shorter capital cycle. Generally, for such assets, we adopt lending or hedging methods to manage these assets.

OK, let me summarize. What you just mentioned about your investment strategy is that the base assets are BTC and Ethereum, which you never sell? Or do you engage in long-term buying and selling cycles?

Saul Dataman

That will also happen. This actually involves another matter: once you have an asset allocation, how do you rebalance the different parts of that allocation? This is actually a very important part of an all-weather strategy. First, there is asset allocation, and second, within different asset allocations, there needs to be a rebalancing of assets. If you have more than two or three asset classes, or if you have a portion of cash, which is stablecoins, through a rebalancing strategy, you can achieve what we previously referred to as traversing bull and bear markets. Simply put, it’s like selling when prices are high and buying when they are low. The rebalancing cycle may vary depending on the asset class. For example, for base assets like Bitcoin and Ethereum, the rebalancing cycle can be relatively long, such as adjusting once every three or six months. However, for smaller coins, it may need to be more frequent.

Do you rebalance Bitcoin and Ethereum that frequently? I thought Shen Yu would never sell.

Saul Dataman

For part of the base assets, I believe they should never be sold, or they might need to be held for a long time.

Understood. Earlier, you mentioned that the base assets are Bitcoin and Ethereum, and above that are some quantitative strategies, and then there are allocations like funds, and then above that are some mining strategies. I understand that the main purpose of allocating funds should be to understand the market, right?

Saul Dataman

Yes, to understand the market and gather more information. Additionally, because there are many tracks and directions in this industry, different funds have different specialties, allowing them to cover the areas where we may not be proficient or where we might miss out.

I understand. I want to ask, since you started CoinSummer in 2018, have your strategies changed by today? Or what changes have occurred in your strategies during this cycle?

Saul Dataman

There have been adjustments. For example, during DeFi Summer, new protocols kept emerging, and new innovations were being produced, so we would rush in and out without achieving a good balance. At that time, we were not very familiar with many protocols and many new things, such as options, so we stepped on some landmines. As everyone knows, some protocols were hacked back then, and we were also victims, but we were relatively lucky. Later, we will discuss risk control. First, let’s talk about the question you just asked. How have we adjusted? I think we have shifted from relatively blind mining to now conducting some calculations before mining, including risk control and formulating trading or mining plans. This is an improvement we have made through the team’s iteration and learning over the years.

Understood, so it has become more institutionalized, right?

Saul Dataman

It leans more towards team collaboration, and everyone has their own expertise.

Got it. Earlier, we discussed some strategies of CoinSummer, and you also mentioned your trading motivations. I also posed a question to you: since Teacher Shen Yu is so wealthy, what is the motivation? You mentioned curiosity earlier, but I think we should delve deeper into trading strategies.

Wait a moment, I need to add more about trading motivations. Regarding the wealth aspect you mentioned, (Shen Yu) is personally wealthy, but our team is still an entrepreneurial team, so the process of accumulating wealth is actually a pursuit of long-term compounding returns. For Shen Yu, he has invested a lot, and the companies he is involved with, including F2 Pool and Cobo, give him a sense of mission. F2 Pool was established before 2013, at a time when there were no professional mining pools or service providers for miners, so he felt a sense of mission. Having earned some money through early participation in crypto, he is now focused on how to maintain that success, or as I mentioned, we see that the industry can truly grow and ultimately succeed, which requires contributions from everyone. Mining pools provide miners with a continuous and stable income, hedging against the volatility caused by luck, while also offering a safe and reliable place to mine, ensuring the decentralization of computing power. There were stories in the past about mining pools approaching over 50% of the total hash rate, and at that time, they actively limited their hash rate to prevent excessive growth. Additionally, there was a period when the combined hash rate of all domestic mining pools reached 70%, especially during the Ethereum POW era.

Furthermore, Cobo initially focused on consumer wallets and later expanded to B2B services, providing custody and services for institutions. This has given the industry a secure way to manage private keys, protect, and store assets, while also allowing for more ways to invest or trade, serving as a foundational infrastructure. So I think this is part of the motivation behind doing these things. Behind this, there must be trading that keeps us sensitive, as many financial tools have emerged during the development process, and we need to supplement our financial knowledge, which requires practice through trading or learning through trading. There are many pitfalls or tuition fees that need to be paid in this process. So I believe this is also a trading motivation.

I never thought motivation was important before, but now I find it quite significant, especially as I’ve recently noticed that many people, particularly after making their first money, if their motivation isn’t curiosity or a longer-term, more infinite game motivation, they can easily revert back or feel a strong sense of unworthiness. Our next topic is about altcoins. Let’s not talk about Shen Yu anymore; let’s talk about you. Do you think there will still be a bull market for altcoins in the next phase of the bull market?

Saul Dataman

First of all, I agree with Shen Yu's viewpoint to some extent. However, where I disagree is mainly in two areas. I believe that first, looking at previous cycles, the development of this industry is particularly fast, with many innovations, so some valuable protocols or applications will still emerge; we just don’t know when. Second, a significant application scenario for crypto is still asset issuance, and the process of issuing assets will inevitably create new assets, which brings about new innovations and new application scenarios. So, the part I agree with is that it may not be like the last cycle, but where I disagree is that these newly created assets should still have great potential and high multiples of returns. It’s just that what he mentioned, or what I understand, or what I think is reasonable, is that in the last cycle, from DeFi Summer to now, the number of assets we’ve issued, including many similar types of protocols, is still too many. Therefore, I believe that some older altcoins may never return, but newly issued assets may still have opportunities.

Understood. Recently, we have also been backtesting some data, and there are indeed quite a few that have increased by hundreds or even tens of times, but there isn’t the same clarity as before. For instance, in the previous cycle, after the halving, the typical pullback was around 50-60%, so it didn’t really matter whether you sold or not, right? If it doubled, it went up. Conversely, if you were bad at timing, you might miss out on that surge. However, this time the pullback has indeed been deeper than before. I think a significant reason is that in the next year or two, $100 billion worth of tokens will be unlocked. I haven’t verified whether this is true or not, but I believe that the market has more tokens now, while the speed of money hasn’t increased as much, or money isn’t foolish; it will still be selective, but the criteria for selection have changed. Recently, we are also writing an article suggesting that in this second half, we believe some new logic may emerge, and those tokens may actually rise.

OK, I think the next topic is mining because I believe many people know Shen Yu and CoinSummer because of mining. I’ve also seen your daily reports, and I think you really work hard, capturing all market opportunities. CoinSummer actually has a daily report that everyone can subscribe to. So I want to know about your process from information gathering to analysis, then to judgment, and finally your choice to mine or participate in a project. I’ve heard that you may have many actions related to the BTC ecosystem recently. How do you do this chain of processes? Can you talk about it?

Saul Dataman

As mentioned earlier, a daily report is a very important part of participating in crypto. First, we have an information explosion, and second, the information is very chaotic. Two years ago, we tried to find a way to make our information more organized or cover a broader scope. Within the team, different analysts or researchers focus on different directions and tracks. So how can we timely or comprehensively gather market information? We attempted to use an automated approach, especially after the emergence of GPT large models last year, we created an AI daily report. The principle is quite simple: we filter out some sources we consider to be of high quality, which may include some media or summaries of daily sources they provide. We then use these sources as input for the AI, allowing it to summarize all the news from these sources in the market, automatically categorizing it. After categorization, we assign different weights or scores to it, and we only select the top 20% or 25% from different categories to write in the daily report. The daily report is divided into many parts, one of which includes changes in on-chain data or capital flows.

We must also mention that we should make good use of some tools, which provide us with a lot of information. For example, Defillama is a great tool that summarizes TVL changes based on different protocol types or chains, including changes in address numbers. Therefore, part of our daily report includes the changes in TVL of some protocols we discovered on Defillama within a day or a week, which provides us with valuable information. The sources of information gathering include this daily report, on-chain information, and some public information. Of course, there are also some financing information or project information learned offline, which may be disseminated or published through social media or other channels. We strive to cover as much of this information as possible, and this information will reach different researchers and analysts focusing on various tracks. They must maintain their lists of the directions or different types of protocols they are monitoring. Once new protocols or opportunities appear on their lists, it should draw attention.

For example, when a particular protocol comes to our team, we first evaluate it. This evaluation mainly focuses on whether the mining opportunity is good and whether it’s worth mining. After identifying the opportunity, we conduct an analysis based on our established valuation model and a horizontal comparison with other protocols in its track or category, which gives us an initial judgment. A deeper level of judgment is made through due diligence on the project, including assessing the team’s background and potential, as well as cross-comparing through different friends or other channels to make a foundational judgment about the protocol itself. This foundational judgment usually requires waiting until it goes live, although we may participate in testnets or continue to monitor. During this process, we may set some checkpoints to observe data changes. For example, for a lending protocol on a certain chain, we are likely to decide whether to participate only after its TVL or activity level reaches a certain threshold.

In simple terms, we have an observation list and an opportunity list. The opportunity list is where we decide whether to participate. The next step is to conduct a safety and risk control assessment. For a protocol, we first look at its audit report. We also have an internal security team that can conduct contract audits and security checks. Once these aspects are passed, we will consult some professional security companies to supplement our knowledge gaps. After all these steps, we will categorize them based on the level of security and risk control, defining them as high risk, medium risk, or low risk. We generally avoid high-risk protocols, while for medium-risk ones, we try to implement some risk mitigation or guarantees. For example, if a protocol has a time lock that is too short or if we believe its multi-signature is controlled by a single party, we may contact the team to see if they can modify it or ask a security company to provide a guarantee. The security company may offer services to monitor changes in the contract. During this process, if any risks arise, we can detect them in a timely manner. This process is essentially a risk control or grading process. If all these aspects pass, we then proceed to a small-scale test to run through the process. This small-scale test may occur before the security checks; if the security checks are passed, I may deploy funds into these protocols. Once the funds are in the protocol, we will monitor it, which includes a monitoring process and an emergency plan.

Regarding the monitoring process, we previously mentioned a tool. Our technical team has developed some internal tools over the years, which mainly fall into several categories: automated trading tools, monitoring and alerting tools, data analysis tools, and dashboards. In the data monitoring section, we previously had a product that allowed us to set customized conditions for on-chain information. It would push alerts to us when these conditions were triggered, sending notifications through various channels. Depending on the urgency, the notifications could take different forms, such as a phone call to wake me up, messages sent through channels like Telegram or WhatsApp, or emails. We have also incubated this into a product called Chainbot (chainbot.io) since last year, allowing everyone to use it. Now, many DeFi mining enthusiasts or large holders are using this monitoring and alerting system.

The next part is actually about contingency plans. In the event that these monitoring alerts are triggered, we have some emergency withdrawal plans in place. This monitoring and alerting system operates at the mempool level, especially on EVM chains. This means that when we detect potential protocol risks or hacking activities, we will try to act quickly to withdraw our assets. The monitoring and alerting service acts like a signal, and once we receive these trading signals, we execute corresponding actions. For mining, this means withdrawing funds to protect our assets as much as possible.

That's very detailed, great! I think I really need this kind of service.

Saul Dataman

Regarding our judgment on this matter, we currently follow a principle: we believe that safety is greater than liquidity, which is greater than expected returns, especially for staking protocols where safety is the most important. The second important aspect is liquidity. After you deposit funds into a protocol, you need to consider whether they will be locked for a long time or if there are other ways to exit, such as being able to exchange them on secondary markets or DEXs. Only after that do we consider returns, and we generally follow this principle.

Understood. Can you give an example of what variables would lead you to start investing in a project?

Saul Dataman

OK, let’s use LRT as an example. If a protocol's revenue reaches a certain threshold, this is what I mentioned earlier about having a continuous evaluation of projects on our observation list. We observe certain changes, which may have been established in the early stages of our mining strategy or may have changed its position in the market, thus drawing our attention. For example, if a protocol suddenly becomes the second in its track or TVL, I think that’s a strong signal.

So your asset security is mainly managed through Cobo, right?

Saul Dataman

Cobo has some tools that are very suitable for what I just described. One tool is called Argus, which is a module built on Gnosis Safe, allowing single-signature wallets to have certain permission settings. This way, single-signature wallets can control specific actions of the assets in the multi-signature wallet, such as being staked, withdrawn, or claiming rewards. Cobo also has an MPC wallet, which is very suitable for mining operations, especially for low-frequency transactions. For high-frequency transactions or situations where we have to manage multiple wallets, we may need to manage private keys ourselves. In such cases, we use technical means, such as HSMs, to manage private keys and control transactions.

I understand. This isn't an advertisement for you; there is indeed a need for this because I think security is crucial for mining. What you mentioned earlier is quite interesting: safety is greater than liquidity, which is greater than returns. However, I believe this judgment is likely based on having a capital size of millions or tens of millions of dollars. I remember Shen Yu once made a very interesting and popular asset allocation suggestion, where he said if you have $10,000, what should you buy? If you have $1 million, what should you buy? If you have $10 million, what should you buy? If you have $100 million, what should you buy? Can you create a mining version of this? For example, I might have $10,000, then $500,000, $1 million, $5 million, or $10 million. Or you could provide a tiered approach for different asset levels regarding what to mine and what strategies to use.

Saul Dataman

OK, I wasn't prepared for this, so let me think about it because I was initially planning to interpret his proposal.

Then go ahead with that.

Saul Dataman

Let me briefly interpret it. I’ll mention mining where relevant because under $100,000 might not be suitable for mining.

Alright.

Saul Dataman

At that time, Shen Yu divided it into four levels: under $100,000, $100,000 to $1 million, $1 million to $10 million, and over $10 million. I think for under $100,000, I’ll quote someone named Liang Fen Xiao Dao, who described the idea of "picking up water bottles in the crypto world." I think this description is excellent; strive to pick up all those water bottles, and with some decent growth, you can accumulate your first pot of gold. This also includes some mining, where using small funds for some interactions can be considered mining or "shearing sheep." For the range of $100,000 to $1 million, his suggestion is to use the time machine principle to find some promising projects to acquire tokens at a low price. This process of acquiring tokens at a low price actually incorporates some mining logic. For example, there are new chains, L2s, or some chains that are not as active as during their peak periods, where new protocols may emerge. For instance, recently on BIC, the Lisa protocol was quite suitable for mining.

Then for $1 million to $10 million, he suggested choosing a base currency and making some appropriate trades. He does not recommend shorting. In terms of mining, there are already many choices available in the $1 million to $10 million range. A good strategy during this cycle is to flexibly use low-leverage on-chain lending protocols. In the past, we have practiced some strategies in Eigenlayer Restaking's LRT protocols, where you can collateralize Bitcoin, borrow Ethereum, and stake it in these secure protocols to earn returns.

Of course, you need to consider liquidity because many protocols may not allow withdrawals for a long time. This is something to consider if you need to exit urgently or if you have to return assets without the conditions to add margin. You need to be prepared for a situation where you might have to sell at a discount. So I think this goes back to what we said earlier: before mining, you need to establish your strategy. Shen Yu mentioned that during this process, you should observe and arbitrage more, as there are many arbitrage opportunities. For example, WBTC had a slight decoupling a couple of days ago, or reETH or pufETH had a short-term decoupling of about two to three points due to a leveraged liquidation event. These are all good opportunities for arbitrage trading. Shen Yu also suggested not to participate in every hot trend at this time, but to earn a stable cash flow through the arbitrage and staking methods I mentioned earlier.

For amounts over $10 million to $100 million, I think you should start following asset allocation principles. You should only allocate a portion of your assets for mining, taking out $1 million to $10 million, which aligns with the logic of the previous range.

Understood. I think I have a few more questions. I believe you have also experienced trading failures and accumulated a lot of experience. For example, if I were a new hire interviewing with you, you might tell me that there are certain things that should not be done at CoinSummer. What would be on that "Stop Doing List"?

Saul Dataman

Some takeaways from the past year include that you must strictly adhere to your trading strategy, including your mining strategy. For example, we obtained many airdrops from a protocol. Our previous trading strategy was to sell once it reached a certain market cap or expected return. However, the reality may be that it never reached that point, and we held onto more hope, thinking it might grow in the future or after some selling pressure. This is the first point: not strictly executing the trading strategy on time. The second point is that these are two independent events; the previous mining activity is one event, and the subsequent trading activity is another. Once you have received returns, theoretically, you should convert it to USDT or Ethereum based on your base currency, and you have earned an annualized return from your previous mining. At that point, whether to continue holding that asset is an independent event that we should consider separately.

Another point is to avoid high leverage, and do not short when there is FUD around a protocol or if there are security risks. We must ensure timely withdrawals to protect our assets.

So, don’t get attached and don’t hold onto illusions.

Saul Dataman

Exactly.

I have two final questions. One is whether you have any book recommendations or any traders you would recommend. I will share this in the text version later, and the replay of my conversation with Teacher SD will also be available on Xiaoyuzhou, so you can search for "Dialogue with Traders." Lastly, do you have any final thoughts in the last five minutes?

Saul Dataman

I have one final point. Since we’ve talked a lot about asset allocation today, I want to emphasize an important aspect: investing in yourself. The freedom of time and physical health are extremely important. We have earned some money through crypto, whether it's a small profit or a sudden windfall from a protocol or meme. After acquiring this capital, it’s essential to focus more on time. The freedom of time allows you to continuously learn, read books, and think, building a strong information base. As we mentioned earlier, in the context of information explosion, time can lead to a deeper understanding of the world. The second aspect is investing in your physical health, ensuring adequate sleep, regular exercise, and a healthy diet. This way, you can create more time for yourself to use freely, which is a very important investment.

So, it’s not just about seizing the current opportunities in crypto; there will be more opportunities in the future, including in AI, new energy, and biomedicine. There will be more new technologies or interdisciplinary collisions that will create more opportunities. Crypto, in this process, is not the end; its financial innovations provide good guarantees for these new technological fields or opportunities. For example, funds can flow better, and AI agents can make payments through crypto. We are just speculating, but overall, we have learned a lot through crypto and improved ourselves. In the upcoming processes, we can seize even greater opportunities, which is the benefit of investing in ourselves and gaining some freedom of time.

Thank you, please continue. This part is very insightful.

Saul Dataman

That's all I have. I hope everyone can find investment and trading strategies that suit them.

That's great! I think what you shared today is very useful and profound. I remember hearing someone, maybe He Yi during an AMA, recommend a book called "Mindset: The New Psychology of Success," and another book called "Finite and Infinite Games." Both of these books have had a significant impact on me. I used to feel annoyed when I encountered something new, thinking, "Oh no, another new thing," because our industry is really exploding with information, and I was particularly resistant to it. But now, I feel that when driven by curiosity, I can be happy just making a little progress every day, and when new things come along, I actively welcome them. I think this actually leads to compounding benefits.

There was also a particularly interesting moment when I went to meet the owner of a certain exchange. Just as I was leaving after our conversation, an English teacher came in. I asked him how his English was, and he said he could handle meetings in English without any problems now. Then he said something that struck me: "You know what? Time is compounding."

Saul Dataman

Exchanging time for space, ultimately, what you gain still requires more time.

Yes, I find it really interesting. Today, our conversation with the trader ends on this inspirational note. See you in Singapore!

Saul Dataman

Alright, thank you everyone.

Thank you all! I see many old friends here. Recently, we will have some new content related to trading. I think our core mission is to open-source what we are learning internally and we hope to see some feedback from you all.

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How does the head of CoinSummer at Shenyu Family Office allocate assets during this cycle?

I. About Trader Saul Dataman and CoinSummer

II. Saul Dataman's Trading Experience: What Can Be Directly Reused and What Absolutely Should Not Be Done

III. Must-Read by Saul Dataman

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