DeFiance Capital founder Arthur: The secret to betting on DeFi projects

Arthur Cheong (Arthur0x), founder of DeFiance Capital, Asia’s largest DeFi-focused fund, shares on the Bankless podcast how he turned a 6-figure portfolio into a 9-figure portfolio in just 3 years.

He explains the fundamentals he focuses on in the protocol and what metrics he uses for valuation, and he also shares which tokens are currently undervalued. Of the Ethereum killers, which one will Arthur bet on?

Here’s The Reading Ape’s compilation of podcast highlights:

One: Who is Arthur0x?

Founder and fund manager of DeFiance Capital (one of the largest DeFi-focused funds in Asia), one of the most successful DeFi investors in the entire crypto space, turning a 6-figure asset into a 9 in 3 years number. DeFiance Capital’s investing style is: Fundamentals, not narrative or sentiment.

Arthur0x’s crypto journey started in the spring of 2018 when he wanted to run a cryptocurrency research startup, but couldn’t find a product-market fit, so decided to focus on investing during the 2018 bear market and bought a lot of what was then not available. Tokens that people care about.

Two: The Secret of Arthur0x’s Success

  • Do your homework and research and focus not on the present but on ongoing trends
  • Perseverance, especially in bear markets where people usually give up
  • Believe we are building something bigger, not just speculative

“I think cryptocurrency is a level playing field for individuals from different backgrounds. I’m not from a very wealthy family, I only came to Singapore 10 years ago. For everyone who is willing to put in the effort, crypto Money really gives them a chance.” – Arthur Cheong

  • It’s possible to get into the crypto space, look around the environment, form an opinion on what’s going on, and then turn that into a fund or something.
  • Spend time in the community, communicate with the protocol team, and give support. By doing so, you may have an impact on the operation of the protocol in the future

Three: Token Value Accumulation

  • In a bear market, after a token falls by 90%, it will fall by another 80%, so the price must have a floor because there are still people using the product
  • Now that there are users, the token will definitely have some value accumulation, so it shouldn’t go to zero
  • This should give token holders more confidence in bad times

have to be aware of is:

  • Is the token well designed and is the token itself well integrated into the platform?
  • Does the coin have strong value accumulation?
  • Could the token act as a catalyst for protocol growth?
  • How does the project party plan to distribute tokens?

Example: Synthetix

  • Loved Synthetix’s token economy from the start.
  • They pioneered the use of token inflation to incentivize the community and early adopters
  • Inflation levels start out very high and then taper off to reward early users who believed in the protocol and took the initial risk.

By taking risks on the Synthetix protocol, token holders can earn rewards from the fees generated by the protocol, including the original token and additional fee income that people incur when transacting in the protocol.

Example: Bancor

  • After a lot of iterations, a reasonable token economic model was finally obtained
  • Bancor creates the most value for token holders – 40% to 60% of fees go to Bancor token holders, not in the form of income, but in the form of burn.
  • At the same time support new liquidity pools
  • The mechanics are still very complex and not many people understand this and therefore not highly rated

Example: Aave and Compound

  • The value accumulation between the two is very similar
  • Credit a fraction of the interest the depositor owns into Treasury
  • In the future, token holders can vote on how to use Treasury’s accumulated reserves, either returning it to token holders or investing further in the protocol.

Four: How to build confidence and have faith?

  • When you keep doing something and keep getting validated from your actions, your confidence grows

“Confidence is the memory of victory. And I believe, it should be the same for everyone. Say when you’re doing something and you keep getting some form of validation from your actions, then your Confidence grows.” – Arthur Cheong

  • Arthur’s first big coin was Synthetix in the bear market.
  • Spent 1 1/2 months writing a very comprehensive Synthetix report, which received a very positive response when it was published
  • After a few months, the market started to react to this and confidence was built
  • As he kept repeating this approach, his operations managed to outperform Bitcoin’s performance despite its dominance, giving him the confidence and signal to start DeFiance Capital

Five: Advantages of DeFiance Capital

  • One of the top crypto-native funds that can invest directly in The DAO
  • Having worked in this field for a long time, I am familiar with this structure
  • The DAO structure also provides some protection for investors as most people can influence decisions

Six: Fundamentals

1. Team quality, such as the track record established by the team

2. Valuation of the protocol

3. Technical Architecture

4. Community Engagement

5. Token value accumulation

6. Near-term catalysts

About decentralization

  • Decentralization only prevents protocol hacking
  • Does not help prevent associated risks as all underlyings fall at the same time (bear market)
  • In a bull market, however, some protocols will do better than others based on fundamentals

About MEME investing overshadowing fundamental investing

  • Similar to traditional stock investing, no one had a way to properly value stocks until Benjamin Graham published his book “Security Analysis”
  • Again, we are at a similar stage in cryptocurrencies, so retail investors need to be educated in every market cycle

Valuation Metrics for Decentralized Exchanges (DEXs)

  • Trading volume
  • The fee charged relative to the protocol market cap is 0.05% of the transaction volume for non-stablecoin protocols and slightly lower for stablecoin protocols (e.g. 0.04% for Curve)

Similar to Price Earnings Ratio (PE) in Tradfi

  • Total Value Locked (TVL) – Indicates how much capital is secured for this protocol
  • Capital Efficiency – Depends on different agreements
  • Users and user growth – For example, Uniswap has no cash flow because there is no value acquisition at the moment, but has a huge user base, and the performance in terms of user growth is the best in the industry, so its valuation is very high

Seven: Repurchase and Burn

  • Arthur0x believes that buybacks and burns are not the most ideal solution, especially when a protocol still has a lot of growth potential.
  • None of the early stage startups in the TradFi world are doing share buybacks or paying out a steady dividend.
  • If it still has a lot of growth potential, the capital should be reinvested instead of burning it directly.
  • Areas for reinvestment could be: more education, more outreach, more translation so that those in the non-English-speaking community can join the battlefield
  • Dividends to token holders may have tax implications, but there should still be a better way of designing

Eight: Which DeFi protocols are undervalued and why?


  • Given their volume, the price shouldn’t be where it is now
  • Others believe that Uniswap V3 will kill Sushiswap because it’s like an older version designed by V2
  • But it didn’t work at all
  • Uniswap V3 is more suitable for active liquidity providers (LPs), which are professional market makers. It is difficult for retail players to become passive LPs of V3.
  • Some tests (albeit with a small sample size) show that V3 does not necessarily perform better than V2
  • At current prices, the price of Sushiswap is zero growth, which is unlikely to happen

Aave and Compound

  • Lending is the easiest way to build a moat in DeFi
  • A new lending protocol with a similar design on Ethereum can’t disrupt Aave and Compound in a year
  • Why? It takes a long time to establish trust. These two protocols have been running for more than a year without security incidents (Note: Compound has had an oracle attack incident)
  • It also takes a long time to build network effects because you need to have enough deposits on the platform for people to borrow
  • Finally, as tokens are more valuable, they also provide more effective liquidity incentives

Nine: Will there be only one automated market making market (AMM) in the future?

  • Arthur0x does not believe in the power law (only one AMM exists to dominate the market)
  • Why? Liquidity is fungible, no loyalty
  • If there is a new AMM with a superior design, liquidity will flow to it and it will dominate for a while
  • When in equilibrium, there may be several dominant AMMs whose market share will not change much
  • Also, once the order reaches a certain size, people also start using aggregators

Ten: Ethereum Killer

  • Most opponents will not be able to dominate Ethereum, maybe less than 5 opponents can compete with it, but can’t kill Ethereum.
  • Currently, more than 95% of DeFi and NFTs are on Ethereum, and in the next two years, we may see this number drop to 80%.


  • Other protocols are all from scratch, so they will grow faster than Ethereum
  • Some ETH killers are using a blue ocean strategy to target new users who haven’t joined yet
  • Ethereum’s network effects are ingrained
  • EVM Compatible Scaling Scheme Further Helps Consolidate Ethereum’s Network Effects
  • Ethereum itself is also improving
  • Ethereum has a clear roadmap of how they plan to decentralize further

More on Ethereum’s Network Effects

  • Binance previously tried and failed to build their own DEX, and quickly became the cryptocurrency company with the largest user base after they grasped the essence of Ethereum’s network effects.
  • Switching the base layer is not an easy task, which is different from switching Dapps

“I think the best analogy is the App Store. Like right now, the two major app stores are Google and Apple. Even a tech company as big as Microsoft, who wants to compete on this, has its own app store. , nor can it be done.” – Arthur Cheong

A good analogy, like Google and Apple have their own app stores, but when big tech companies like Microsoft try to compete on this, they too fail.

Eleven: Which ETH killer will Arthur0x bet on?

  • Solana is the best competitor to compete with Ethereum
  • You can’t compete in what Ethereum does best, you have to take a fresh approach
  • Solana won’t be as decentralized as Ethereum and they will have a lot less nodes due to higher hardware requirements
  • Would rather bet on something completely different than another protocol that is a marginal improvement on Ethereum

Twelve: How do Eastern and Western perceptions of cryptocurrencies differ?

  • Asia can be divided into 2 different parts: English speaking area and non English speaking area
  • Historical and cultural factors will determine the speed of adoption

english speaking area

  • Such as: India and most of Southeast Asia
  • Adoption is fairly common
  • Understand DeFi and use it in important ways
  • Having a decent DeFi community
  • Need to see more built-in checks and balances in the protocol

Chinese speaking area

  • e.g. China, Hong Kong and Taiwan
  • In 2018, it was initially skeptical (whether these places can become a climate), but after the DeFi summer of 2020, a lot of new users can be seen.
  • Slightly less attention to the concept of encryption
  • More focus on self-custody of assets as they saw the OKEx event where no one can withdraw any balance for 2 months
  • Their trust is more in the team behind the protocol

Japan and Korea

  • Due to the language barrier, there are not many people using DeFi compared to other regions.
  • Currently, over 95% of DeFi and NFTs are on Ethereum, and in the next two years, it is likely to see it drop to 80%.
  • Language barriers can be overcome by using translation and building a strong foreign language community
  • Citing the example of Vitalik going to China to promote Ethereum, there is now a large committee in China, and the atmosphere for sharing ideas is very good.

Thirteen: The Singapore Government’s View on Cryptocurrencies

  • Regulators at the top are really trying to understand cryptocurrencies, and their level of understanding is probably one of the highest in the world
  • They know the benefits of DeFi, but it remains to be seen if they buy it 100%
  • They want to wait and see if the benefits of DeFi translate into real-world activity
  • Follow FATF guidelines drafted by major countries such as the US and EU
  • a lot less prosecution and aggression

Fourteen: Opinions on the cryptocurrency industry in the second half of 2021

  • After the success of Polygon and Binance Smart Chain, there are more scaling solutions
  • More users will join, there are 1 million users now, but may increase to 5 million to 10 million by the end of the year
  • Forecast TVL to reach 200 billion by the end of the year
  • It is predicted that the price of ETH will reach around 5,000 to 10,000 by the end of the year

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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