@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.
The trading insights he has never shared publicly 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, serving as 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, one of the world's largest oil commodity traders, where he rotated through shipping, analysis, and trading functions, closely collaborating with traders and charterers to increase the company's trading volume.
Arthur became increasingly interested in blockchain, so he resigned from the international oil trading company he was working for. This experience in commodities helped him establish a relatively strict set of standards in crypto investment, allowing DeFiance to minimize losses during the FTX collapse.
Later, he became a fundamental investor, focusing on the potential use cases of cryptocurrencies beyond speculation. This led him to delve deeply into DeFi in early 2019 and capitalize on the opportunities presented by DeFi Summer.
Today, he is the founder of @DeFianceCapital, previously engaging in both primary and secondary investments, but now his fund primarily focuses on the secondary market. He is also a KOL with over a hundred thousand followers.
Arthur said, “In my growth as an investor, I gradually explored my investment philosophy. Every investor has their own investment philosophy, like Buffett, who represents the idea of long-term value investing. Once your investment philosophy is formed, you will start looking for investment strategies that suit you. These strategies will adjust according to 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?
In his journey to becoming an investor, he found that everyone has similarities in exploring investment philosophies.
Typically, people first encounter stock investment from a fundamental perspective. However, over the past 10-15 years, he observed that the importance of the U.S. stock market has been increasing, becoming the only market globally with long-term significant gains. Other markets, such as Europe and Asia, have not experienced similar bull runs. Therefore, not all markets will have long-term gains; it largely depends on the fundamentals of the entire market.
The second observation is that the popularity of value investing is declining. Narrowly defined value investing, such as stocks with high P/E ratios, has performed poorly in the last 10-15 years. In contrast, investing in growth stocks, like tech stocks, has yielded better results. He also tends to invest in such growth-oriented projects.
To achieve returns that surpass the market, the key is to identify projects that can exceed the market growth rate earlier than the market does. This is the essence of 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 in the U.S. and China can succeed; they can expand rapidly within large markets. In contrast, regions like Southeast Asia face complexities that make expansion more challenging.
Thus, Arthur gradually formed his investment philosophy.
DeFiance Capital's Investment Strategy Revealed
Arthur said, “Our scale is roughly between eight and nine figures.”
The strategy is typically a fundamental-driven approach to selecting coins for investment. “Of course, we mainly choose relatively small to mid-sized coins.
Bitcoin and Ethereum are not our primary investment targets because our goal is to outperform beta, where beta refers to Bitcoin and Ethereum.
When we started in 2020, we focused on DeFi, and as long as we believe a sector has potential for growth, we will invest. Last year, we also invested heavily in AI, and we have consistently invested in gaming.”
Someone asked Arthur, “How do you ensure you understand everything?”
He candidly replied, “I think this can only be achieved by spending time. This is actually a threshold; as long as you are willing to invest that time, anyone can reach a level suitable for investment in a relatively short time. Of course, you cannot expect to understand it as deeply as a technical expert.
However, I believe that as a good investor, you do not need to have that deep understanding to invest; you just need a basic understanding to start investing.
Advice for Newcomers
When asked how to quickly understand a new sector, his answer is unique.
Arthur said his method consists of three steps.
The first step is to determine whether there is a connection between the sector and crypto. He believes this is something he learned in 2017. Sometimes, people force applications onto blockchain, but the compatibility may be low.
The second step is to assess the potential for rapid growth. Since we all tend to be a bit impatient, if a sector takes a long time to gain traction, people may not have the patience for it.
The final step is data. Do you have data to support your view? If you are optimistic about this sector, you should prepare some data to back it up, and you need to give yourself time to make a judgment.
If you say you are optimistic about this sector, you might look for data to support that view within three to six months. If after six months the data has not materialized, 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?
In the operation of its previous fund, due to some force majeure reasons, the fund launched a new round 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 led to the recent fund performing quite well.
During this process, Arthur reflected on his experiences and noted 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 challenges, as many aspects are still immature, making it easy to speculate.
Arthur mentioned that in the past 5 to 7 years of industry history, the key to success has been “survival”; as long as you do not 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:
The first is Custody Risk. He believes that when managing other people's funds, it is essential to have 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 address this issue.
The second is Counterparty Risk, which includes exchanges and the investment projects themselves. Some people lack imagination regarding these risks because they usually hold an optimistic view of 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 to easily trust the promises of project parties.
Arthur said he has lost money in both custody and counterparty risks. Since 2022, they have identified an imbalance in the market: too many venture capital (VC) funds have emerged, while the market does not have enough liquidity to absorb these funds. Especially in the U.S., some large VC funds are far larger than the market can bear.
This has instead provided opportunities for the secondary market, as the secondary market is more volatile, and many LPs are unwilling to participate.
More and more quality projects go unnoticed after issuing tokens because VCs often focus only on early investments and neglect subsequent operations. Therefore, Arthur wants to fill this market gap by providing support to projects that need help. The functions of VCs are becoming more diversified.
As the industry matures, how should retail investors respond?
When discussing this cycle compared to previous cycles, Arthur feels there are many “watershed moments,” such as the FTX collapse and liquidation, and then the settlement between Binance and the U.S. government, which he considers milestone events.
“Of course, our industry will still have many unconventional practices, but I think it will become increasingly difficult, though not impossible.
For instance, this year's performance shows why Bitcoin reached an all-time high while many friends feel they haven't made much money. This is because our various primary investments and smaller coin positions are usually larger than Bitcoin.
The biggest change is that the market is indeed moving towards a more institutional direction. The largest exchanges in the industry have settled with the U.S. government. Therefore, they may face more operational restrictions in the future.”
How to accurately determine the timing for entering and exiting positions?
A VC friend asked, “I often look at your LP reports, and they perform very well. In this process, there are many tokens you see that others may not. You also have heavily invested tokens, but the market liquidity isn't that good. So how do you determine the timing for entering and exiting specific positions?”
Arthur said this is indeed one of the most challenging aspects to control accurately.
Market timing is very important for our circle. He believes there is no completely correct answer, and depending on market conditions, you need to make relative adjustments, which they are always doing.
He feels that the biggest difference between this cycle and previous ones is that when you see fundamentally strong projects, you need to be proactive in profit-taking.
“For this cycle, I believe the best profit-taking opportunities do not exceed two months. Specifically, from late March to early April, this short month is the best time to exit for profit. If you do not exit, it is easy to drift far from that price point.
Therefore, I think you need to look at the market, consider macro factors, observe market liquidity and trading volume, and also assess market sentiment, including funding rates, both positive and negative. We will continue to increase the data we analyze to achieve better timing for macro allocation.”
On a fundamental level, Arthur also looks at on-chain trading volume to see if there is significant buying and selling.
He also monitors fundamental growth. Because sometimes he feels that from a fundamental perspective, many blockchain projects can go from very low valuations to being highly overvalued in a short time. The AI sector is the best example.
Arthur believes that the AI sector was relatively undervalued last year. At that time, people were still quite conservative about Crypto AI. However, once the bull market arrived, speculation intensified, and many assets surged over tenfold.
DeFiance Capital's Profitable Experiences
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 everything at the peak, as some tokens were still locked, and although the return rate was high, the investment amount was relatively small.
When Axie raised its first round of financing, there were very few investors who believed in this sector, and since it was during a bear market, the total financing for that round was less than $1 million, so they did not invest a lot of money. However, in terms of return rate, this project was the highest.
From a sector perspective, the most successful investment has been in DeFi. They entered this sector very early, so basically, all the currently successful blue-chip DeFi projects, such as dYdX, Sushiswap, AAVE, YFI, and Synthetix, have been invested in.
DeFiance Capital has also performed well in the secondary market. In the early days, 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 previously mentioned projects like YFI, Synthetix, and Sushi were investments made in the secondary market.
Lessons Learned from the Terra and FTX Events
After these events, Arthur has a higher standard for the integrity of teams. If a person's character has issues, no matter 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 flaws and breaches of ethical standards. For investors, such investments hold little significance unless one is pursuing very 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 you have a smart and hard-working crook who’s eventually going to cheat you."
This means that if you choose business partners based solely on intelligence and energy, you might end up with a smart and hardworking fraud. The actions of morally deficient individuals can be more extreme and may backfire.
Another reflection is on risk control, which Arthur has done quite well in. Although he invested in Luna, he did not suffer significant losses from it.
The subsequent story is as mentioned at the beginning.
Arthur raised a second fund, 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, it can collapse in a short time.”
Many may be curious about him.
Looking back at his experiences, it may be Arthur's integrity that has contributed to his success today.
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