The founder of DeFiance Capital talks about the basic logic of DeFi investment and valuation


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Arthur Cheong also predicts that DeFi users may reach 5 million by the end of this year, with locked-up funds reaching US$200 billion.

Original title: ” Exclusive丨Arthur0x Cheong: How to Build a 500 Million US Dollar DeFi Fund
Finishing: The Reading Ape

Arthur Cheong (Arthur0x), the founder of DeFiance Capital, a DeFi-focused fund in Asia, shared in the Bankless podcast how he turned a 6-figure portfolio into a 9-figure in just 3 years. He explained the basic elements he focused on in the agreement, and what indicators he used for valuation. He also shared which tokens are currently undervalued. In the Ethereum killer, which one would Arthur bet on?

The following is The Reading Ape’s compilation of podcast highlights:

Who is Arthur0x?

The founder and fund manager of DeFiance Capital (one of the largest DeFi-focused funds in Asia), he is one of the most successful DeFi investors in the entire cryptocurrency field, turning 6-figure assets into 9 in 3 years number. DeFiance Capital’s investment style is based on fundamentals, not narratives or sentiments.

Arthur0x’s crypto journey began in the spring of 2018. At that time, he thought about running a cryptocurrency research startup, but did not find a product-market fit. Therefore, he decided to focus on investment in the 2018 bear market and bought a lot of People are interested in tokens.

Arthur0x The Secret of Success

  • Do your homework and research. The focus is not on the present, but on the continuing trend
  • Perseverance, especially in a bear market, people usually give up in a bear market
  • Believe that we are building something more ambitious than just speculation

I think that cryptocurrency is a field of fair competition, which is aimed at individuals from different backgrounds. I am not from a very wealthy family. I only came to Singapore 10 years ago. For everyone who is willing to work hard, cryptocurrency really gives them a chance.

——Arthur Cheong

  • It is possible to enter the cryptocurrency field, look around the environment, form an opinion about what is happening, and then convert it into a fund or something else. This is possible
  • Spend time in the community, communicate with the agreed team, and provide support. By doing so, you may have an impact on the operation of the agreement in the future

Token value accumulation

  • In a bear market, after the token drops by 90%, it will fall by 80%, so the price must have a bottom line, because there are still people using this product
  • Since there are users, the token will definitely have some value accumulation, so it should not be zero
  • This should make token holders more confident in a downturn

have to be aware of is:

  • Does the token have a good design, and does the token itself integrate well into the platform?
  • Does the token have a strong accumulation of value?
  • Can the token serve as a catalyst for the growth of the agreement?
  • How does the project team plan to distribute the tokens?

Example: Synthetix

  • From the very beginning, I really liked Synthetix’s token economy.
  • They are the first to use token inflation to incentivize the community and early adopters
  • The level of inflation was very high at first and then gradually weakened to reward early users who believed in the agreement and assumed the initial risk.
  • By taking on the risks of the Synthetix agreement, token holders can get a return from the fees generated by the agreement, including the original tokens and the additional fee income that people generate when transacting in the agreement.

The founder of DeFiance Capital talks about the basic logic of DeFi investment and valuation

Example: Bancor

  • After a lot of iterations, a reasonable token economic model was finally reached
  • Bancor creates the greatest value for token holders-40% to 60% of the cost belongs to Bancor token holders, not in the form of income, but in the form of burning.
  • At the same time support the new liquidity pool
  • The mechanism is still very complicated, not many people understand this, so it is not highly praised

Example: Aave and Compound

  • The accumulation of value between the two is very similar
  • Calculate a small portion of interest owned by depositors into Treasury
  • In the future, token holders can vote to decide how to use Treasury’s accumulated reserves, either return it to token holders, or further invest in the agreement.

How to build confidence and have faith?

  • When you continue to do something, and continue to be verified from your actions, your confidence will increase

Confidence is the memory of victory. And I believe that it should be the same for everyone. For example, when you are doing something, you continue to get some form of verification from your actions, then your confidence will continue to increase.

——Arthur Cheong

  • Arthur’s first major position was Synthetix in a bear market.
  • It took one and a half months to write a very comprehensive Synthetix report, and received a very positive response after publication
  • A few months later, the market began to react to this and confidence was built
  • As he kept repeating this method, despite Bitcoin’s dominance, his operation successfully surpassed Bitcoin’s performance, which gave him the confidence and signal to start DeFiance Capital

Advantages of DeFiance Capital

  • One of the top cryptocurrency native funds that can directly invest in DAO
  • I have worked in this field for a long time and I am familiar with this structure
  • The DAO structure also provides some protection for investors because most people can influence decisions

The founder of DeFiance Capital talks about the basic logic of DeFi investment and valuation


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

  2. Agreement valuation

  3. Technology Architecture

  4. Community participation

  5. Token value accumulation

  6. Recent catalytic elements

About decentralization

  • Decentralization can only prevent protocol hacking
  • Doesn’t help prevent related risks, because all targets fell at the same time (bear market)
  • However, in a bull market, based on fundamentals, some agreements will do better than others

About MEME investment overwhelming fundamental investment

  • Similar to traditional stock investment, before Benjamin Graham published his “Securities Analysis” book, no one had a way to correctly value stocks
  • Similarly, we are at a similar stage in cryptocurrency, so retail investors need to be educated in each market cycle

About the valuation index of decentralized exchange (DEX)

  • Trading volume
  • Relative to the market value of the agreement, the fee is 0.05% of the transaction volume for the non-stable currency agreement, and slightly lower for the stable currency agreement (for example, Curve is 0.04%)

Similar to the price-to-earnings ratio (PE) in Tradfi

  • Total value locked (TVL)-indicates how much capital protection this agreement has
  • Capital efficiency-depending on different agreements
  • User and user growth-For example, Uniswap has no cash flow because there is no value acquisition at present, but it has a huge user base. The performance of user growth is the best in the industry, so its valuation is very high

Repurchase and burn

  • Arthur0x believes that buybacks and burns are not the most ideal solution, especially when an agreement still has great growth potential.
  • Among the early-stage startups in the TradFi world, no one will repurchase shares or issue stable dividends.
  • If it still has great growth potential, capital should be reinvested instead of burning capital directly.
  • The areas of reinvestment can be: more education, more extension work, more translation, so that those in non-English-speaking communities can join the battlefield
  • Dividends to token holders may have tax implications, but there should still be better design methods

Which DeFi agreements are undervalued and why?


  • Given their trading volume, the price shouldn’t be what it is now
  • Others believe that Uniswap V3 will kill Sushiswap because it is like an old version of V2 design
  • But it didn’t show up at all
  • Uniswap V3 is more suitable for active liquidity providers (LP), that is, professional market makers. It is difficult for retail players to become passive LPs of V3.
  • Some tests (although the sample size is small) show that V3 may not perform better than V2
  • At current prices, the price of Sushiswap is zero growth, which is unlikely to happen

Aave and Compound

  • Borrowing is the easiest way to build a moat in DeFi
  • Using a similarly designed new lending protocol on Ethereum will not be able to subvert Aave and Compound within a year
  • Why? It takes a long time to establish trust. These two protocols have been running for more than a year without any security incidents (Note: Compound has had an oracle attack incident)
  • It also takes a long time to establish a network effect, because you need to have enough deposits on the platform to allow people to borrow
  • Finally, as the value of tokens is higher, the liquidity incentives they give are also more effective

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

  • Arthur0x does not believe in the power law (there is only one AMM to dominate the market)
  • Why? Liquidity is replaceable, there is no loyalty
  • If there is a new AMM with superior design, fluidity will flow to it and it will dominate for a period of time
  • When in equilibrium, there may be several dominant AMMs, and their market share will not change much
  • In addition, once the order reaches a certain size, people will start to use aggregators

Ethereum killer

  • Most opponents will not be able to occupy the dominant position of Ethereum, and perhaps less than 5 opponents can compete with them, but they cannot kill Ethereum.
  • Currently, more than 95% of DeFi and NFT are on Ethereum. In the next two years, this number may drop to 80%.


  • Other protocols start from scratch, so they will grow faster than Ethereum
  • Some ETH killers are using blue ocean strategies to target new users who have not yet joined
  • Ethereum’s network effects are deeply rooted
  • EVM-compatible expansion plan further helps consolidate the network effect of Ethereum
  • Ethereum itself is constantly improving
  • Ethereum has a clear roadmap of how they plan to further decentralize

More about the network effects of Ethereum

  • Binance tried to build their own DEX before, but failed. After they grasped the essence of Ethereum’s network effect, they quickly became the cryptocurrency company with the largest user base.
  • Switching the base layer is not an easy task, which is different from switching Dapp

I think the best analogy is the App Store. Just like now, the two main app stores are Google and Apple. Even if a big technology company like Microsoft wants to compete in this area and has its own application store, it can’t do it.

——- Arthur Cheong

A good analogy is that Google and Apple have their own app stores, but when big technology companies like Microsoft try to compete in this area, they also fail.

Which ETH killer will Arthur0x bet on?

  • Solana is the best rival to compete with Ethereum
  • Can’t compete in what Ethereum does best, and must adopt a new approach
  • Solana will not be as decentralized as Ethereum, and due to higher hardware requirements, their nodes will be much less
  • Would rather bet on something completely different than on another agreement to make marginal improvements to Ethereum

The founder of DeFiance Capital talks about the basic logic of DeFi investment and valuation

How do the East and the West view cryptocurrencies differently?

  • 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 quite common
  • Understand DeFi and use it in important ways
  • Have a decent DeFi community
  • Need to see more built-in checks and balances in the agreement

Chinese area

  • Such as: China, Hong Kong and Taiwan
  • In 2018, I initially doubted (whether these places can become a climate), but after the DeFi summer of 2020, many new users can be seen.
  • Slightly less attention to the concept of encryption
  • Pay more attention to the self-custody of assets, because they saw the OKEx incident and no one can withdraw any balance within two months
  • Their trust is more to the team behind the agreement

Japan and Korea

  • Due to language barriers, not many people use DeFi compared to other regions.
  • Currently, more than 95% of DeFi and NFT are on Ethereum, and within the next two years, you may see it drop to 80%.
  • By using translation and building a strong foreign language community, language barriers can be overcome
  • To quote 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.

Singapore government’s view on cryptocurrency

  • The highest-level regulators are indeed trying to understand cryptocurrencies, and their level of understanding may be one of the highest in the global regulatory framework.
  • They know the benefits of DeFi, but it remains to be seen whether they will buy it 100%
  • They want to wait to see if the benefits of DeFi can be translated into real-world activities
  • Follow FATF guidelines drafted by major countries such as the United States and the European Union
  • A lot less prosecution and offensive

Views on the cryptocurrency industry in the second half of 2021

  • After the success of the Polygon and Binance smart chains, there are more scaling solutions
  • More users will join, now there are 1 million users, but it may increase to 5-10 million by the end of the year
  • It is predicted that TVL will 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

All the above information is for educational purposes only and should not be used as investment advice. The podcast summary is written by The Reading Ape.

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