🎙️ 73 - Building a $500M DeFi Fund | Arthur0x

welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity i'm ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david what an episode arthur zero x what did we cover today we covered a little bit of everything and and we started off with the story of how arthur 0x and defiance capital came to be and it's already one of my

favorite stories in d5 favorite stories in ethereum and it's something that i feel really really passionate about is that if you are coming into the space and you see things and you notice things and you start to execute on the things that you noticed you too just like arthur xerx might be able to turn a hundred thousand dollars into a hundred million dollar plus fund like that option and that choice is available to you if you have the the grit and the patience and the foresight to be able to

see the things that arthur xerox saw and why he was able to turn defiance capital into the gargantuan that it is in this space we covered much more than that and so i'll leave that to you ryan to explain to the listeners but that was my favorite part give that back to me yeah look man it's my favorite part too this story is amazing six figures to nine figures right and the the thing i would add to that is you also have the grit to stick with this during a bear market i think that's key if you're if you're looking for that like

50x 100x type of return you have to believe in something when no one else does right right now we're in a you know we're in a hot ish warmish bull market it was not that way in 2018 when arthur was was uh growing up in d5 and when he was investing in things no one else was touching these tokens were like everyone hated tokens and the tokens were out tokens were totally out anyway we covered that that that uh story is amazing we talk about defiance capital

as focused on fundamentals which is really cool to hear not just not narratives not sentiment but actual fundamentals of tokens and ignore the rest listener that is an option for you you don't have to go chase all of the narratives that you hear and see in crypto you can just focus on fundamentals refreshing here that we did an automated market maker comparison why are sushi and uniswap value differently how about curve how about bancor how about balancer will one automated market maker win the network effect will there be many we also talked about eth killers

um i will not give away arthur's conclusion there because i think he had some great conclusions i even asked him if he had to pick one non-ethereum layer one which would he be and why he answered that question then we talked about and concluded this with uh d5 from a an asian perspective so from the perspective of asia i should say and arthur had a great kind of um i guess categorization of different areas in asia that aren't like

jurisdiction based but are more kind of cultural alignment that i think was super useful and will be listener useful to listeners as well of course we concluded with price predictions because you know we just had to because it's bankless it's fun well we also concluded with what arthur is really excited about towards the end of 2021 and he actually he actually gave a really interesting answer uh and well i'll tease it real quick here because it was actually the elaboration i think was the cool part he thinks he's really excited for scale as we all are we've been beating the layer

two summer drum here on bank list but arthur thinks that once we have scale the floodgates for users just absolutely open and so we dive into that a little bit as well towards the end of the conversation but uh as a recap that was a whole episode really cool story guys you are going to enjoy this so before we get into the episode we want to thank the sponsors that made this possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange

infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uni-swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and

they are in need of labor if you think that you have something to contribute to the uni-swap dow apply for a grant to uni-swap just look at the size of the uni-swap treasury it's almost three billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dow no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer unit swap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for

your project thank you uniswap for sponsoring bankless balancer is a powerful platform for flexible automated market makers typical amms just have two tokens inside of one liquidity pool which can lead to fractured liquidity across the many pairs in d5 with balancer you can access the full power of multiple tokens inside of one single amm which unlocks an entirely new playing field of possibility this makes balancer an awesome building block for so many different use cases balancer pools can make asset indices but instead of paying

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you in v2 idle tokens are capable of generating yield in defy without sacrificing liquidity in the pool using balancers asset managers balancers of vault architecture lets you trade between balancer pools at a fraction of the cost for trading on other platforms balancers mission is to become the primary source of liquidity in d5 by providing the most flexible and powerful platform for asset management and decentralized exchange dive into the balancer pools at app.balancer.fi

bankless nation we are super excited about our next guest arthur zero x is one of the most successful defy investors in the entire crypto space he runs defiance capital which is the largest d5 focused fund in asia he's based in singapore funded by tons of investors maybe most notably by the heroes three arrows capital folks suzu and kyle davies arthur we have so much to talk about man i'm glad you joined us today how are you doing doing well um been a listener of bangla

since day one and it's my pleasure to be here that's awesome uh well very cool well we we have been a follower of yours for a long time as well and i want to kind of start with this uh this story which is kind of your story of getting into d5 and getting into crypto um i understand that you went full time into crypto in um 2018 so lots of folks managing funds have been in crypto for longer you tweeted this out and i think this is uh incredible 500 million and 50k followers what comes

next 5k eth i hope so maybe 10ke um but 500 million 50k followers you started in crypto full time in 2018 that is incredible man that's an incredible story how did that happen tell us yeah so uh it's a long story um but uh i think it's a there's some useful take away so i'll share a bit more i started in space in 2018 um initially i want to run a crypto research startup

because i think initially when i came into the space i realized that there's a lot of focus on the high and the promises but there is lack of focus on what's really happening and how to value this thing properly so i initially want to run a crypto research startup but i didn't find product market fit so what happened is i decided to focus on investing instead but that was the bear market so 2018 you know bitcoin went to 3000 if

whether the lowest point was 80 plus dollars but i think uh during that period of time i was always asking myself so besides just trading and speculation what other use case can we get from crypto and coming from someone who went through the ico bubble um i think that's very important because during that period everyone who have experienced it must have realized that we can literally see all the different use cases being

experimented um travel and a b and b on blockchain uh spotify and blockchain etcetera etcetera uber on the block yeah yeah exactly but i think none of them are really uh being realized or achieved in a major way um except for financial use cases i think at the end of 2018 um i think the first time i heard about d5 was in i think january 2019 but i know the term was coined in late 2018

by a group of early d5 teams such as uh i think the set protocol uh dharma and a few others they just join together and say why don't we create a term for this new movement and then the term d5 was born um yeah so um i think and this is also part of the extension of my stable coin thesis because um when when i was uh helping some of the new crypto startup initially a lot of them want to introduce their

own token as a payment mechanism but uh it has shown not to be working well in fact it just doesn't work at all because nobody wants to use a new token to pay for any services people want to use a common currency uh in crypto world that will most likely be if or bitcoin but uh right now i would say that uh stable coin is actually the most suitable payment just the people want a stable unit of account and i think that time stable coin just started to took off because bear market people want to find a safe haven and

stable coil become natural selection and i think that being bullish on a stable also lead me to bullish on d5 as well because uh defy uh allow this uh whole uh exchange of uh crypto assets uh between stable coin and the volatile one and this is a very obvious use cases and after that the extension of landing and borrowing um after being a user of this i can just see how important is uh to the entire space so that's why i started to dig

more research into d5 start being a power user an early early supporter and obviously being a very early use of synthetics community helps a lot as well and that kind of lasts me through most of 2019 being an early d5 user and community member especially in the synthetics and i think uh what really changed is um i think so i think the d5 synthetic start to did quite well around there and i think

around 2020 um the whole space before d by summer uh start to grow pretty well on the organic level but then after d5 summer it just was just like a explosive moment that everyone realized that d5 is not a fad that a lot people start to really recognize that there's a lot of potential in this and yeah and i think at that moment i'd raise defiance capital and we have grown very fast since then so with the support of three arrows capital we have

raised around um around mid eight figures of capital uh but treyarch and myself are the largest investor and throughout the office from 2020 second half of 2020 until now we've grown tremendously to around around low to mid 9 figures of capital right now obviously like the the va the figures change a lot depending on the market condition but yeah that's where we are right now um yeah i think that that's uh yeah we can go deeper into any part we would like to that's

that's a pretty incredible story and bankless listeners um i i want you to to draw out a few things that arthur said there is as he started with kind of a thesis uh but then he also became a defy super user which is interesting there and then uh turned kind of investor turned fund manager um but but the amounts that you're managing are are pretty incredible arthur and i'm just like curious because i think a lot of people listening are d5 super users also

um d5 investors uh and they're pretty excited about your trajectory because they you know want a similar trajectory they're interested in the path that that you've taken um so like what is it was was it just this combination of right place right time you being a d5 super user you applying a thesis at a time when the market was was bearish and then it flipped flipped bullish what's kind of the the secret ingredient for your success here because i think a

lot of listeners want to emulate this i think there's a um i would say that uh i think that there's no secret uh it's more like um after doing your research or called homework uh a really strong belief in your research uh in your understanding and obviously that is based on the uh that you your research is the right research um and i think that uh a lot of time people

are very affected by what is happening now but not not on what has happened over the last uh what was the previous trend and what is ongoing trend so if you always focus focus on the current point of the market um you're always going to draw a very different conclusion because crypto can be a bull market in two months in the bear market in two months which is what we have experienced recently but if you look at the crypto and 2018 yes there was a the bubble and yeah a lot of the misallocation of capital but the usage of crypto actually

has been increasing and even that time we see a very small glimpse into the potential nft i was also the very early uh player of cryptokitty as well so i think yeah obviously the nft whole thing really come off right around early this year right but the whole the first gleam into the potential already happened two years ago and for d5 it's actually you can also argue that uh yeah you see the potential dexes when ether delta came on the scene but it just also was two years too early until uni sword really changed

the game so i think that uh by looking into the previous usage and the early sign of parallel market v and you look at where the world want to go next i think you can you can really the so-called cliches zoom out uh that gives you a lot more confidence on where the world is going so i think that uh the the biggest factor for me is really the persistent because i think a lot of people drop out to their brain market but i believe that what we are doing is just not all hype and just there's actually something bigger that we are building and obviously i think being early helps a lot but i think the

entire space is still incredibly early um there are some d5 projects where investors when i invested is around less than 100 million market cap and right now i think there's still quite a lot of promising d5 protocol they're trading at below 100 million market cap as well and i have no doubt some of them will become a billion dollar d5 protocol in the future and these are most of their switch ones i mean i don't want to i don't want to be this like a top my back section but i think um most of them that which i

mentioned that they're actually publicly listed already like you can buy them from unisop from some of the centralized exchanges so yeah you don't even need to like get into private sale to get in yep here's the other thing that you were doing at a time when it wasn't popular because in in 2017 it was there of util futility tokens like pointless tokens that were injected in protocols right in 2018 it was not popular to make a bet on a token like tokens were out they were dead i mean they were useless right

that this is what the market sentiment held and that's why we saw even while there was early traction in d5 protocols um tokens just weren't being valued probably the way they they should uh be valued was that a core part of your thesis at the time that hey these tokens are actually worth something even though the market is is highly discounting them yes um so i think that's a that's where i was quite different with most the consensus back then because uh i think first of

all my i used to be very adamant and i think as right now i'm still have a very strong focus efficient token value accrual i think especially in a bear market um there's really uh during the 2018 there was really no bottom especially especially for the so-called altcoins after they dropped ninety percent they can still drop another eighty percent so i think at that point of time valuable crew will become extreme because there should be some base flaw in the value if the token is uh if the if the product is being used and people

are using it so if the product is there should be some value being captured and this value should provide like a flaw to the value in the token so you know that you will not go to zero and that gives the token holder a lot more confidence in holding during the bad time so that was the way i approach it during the bear market and and i think that this actually extends to most of the token i think that some form of value accurate has to be because else what are we really investing i mean the so-called futility token um yeah is it

the investor doesn't need to hold them we only need to purchase them when we need to pay for certain token services which is why that the demand factor would be so weak um yeah so i think that that's a very major difference and i think that uh the unique thing about token is uh because i personally did a lot of research so what is the best way to design a good token and how do we make it like integrated into the platform um i think that there's two main purposes a token should serve first it has to have some strong value accrual the second thing is uh

it should serve as a growth catalyst for the protocol and the community because i think this is the advantage of token competitor traditional equity because you can't really freely give out the equity to your user and community member due to like very various regulatory restrictions for token you have a lot of leeway to innovate with this and this is actually a very strong advantage that the crypto community should not give up on yeah arthur one thing i think is really cool about your story and i want to go more into fundamentals and we're about to get

into that intersect but i want to still talk about the story of defiance capital and you arthur uh you you you go through you came into this role in 2017 you go through the bear market with us in 2018 2019 with me we're we're both uh uh students of the 2017 era uh and i i want to impress a pardon upon the listeners that you came out of just your first cycle starting to manage a fund but i also i also arthur i want to ask how old are you uh how old are you and and in

yeah how old are you i'm currently 29 years old and you're managing a fund that's fun where somewhere between 200 and 500 million dollars depending on the emotions of the crypto markets does that ever scare you does that is that a scary thing because that's a lot of money and you're and you're you're 29 years old that's that's a crazy thing that i think we could only find in crypto do you ever reflect on just the the magnitude of the discrepancy between the the size of the fund and how young you are

um yeah actually um yes um but i think there's actually another factor i i'm most impressed and surprised by actually i think even in traditional finance you do have some of the like a successful trader managing a few hundred million dollar of capital um but i think most of these are not their capital but i think for crypto i'll say uh it's not just for our fund but a lot of other fund as well like the principal capital is probably a majority of the investment fund uh same for defiance so

i think in that sense yeah it's quite amazing that how how people at our age can accumulate such an amount of capital and just managing such an amount swing i think this is really uh brings to the fact that crypto is a major level playing field uh and for everyone from different background because i didn't come from like a very uh wealthy family and i was like actually i came to singapore only 10 years ago so i think that's a and crypto just really

give everyone the opportunity who willing to put in the effort and the and meaning willing to make it happen so i think that that's the effect i'm definitely impressed by i i think that's what listeners should really walk away with right now is is uh you know when arthur is telling his story about just the formulation of his thoughts in 2017 2018 as somebody that also came into the world of crypto around that same time i very much resonate it resonated with these these thought structures or thought patterns that arthur was having about what he

thought about the market at the time and you know so i i think listeners should understand that like it's possible to come into the world of crypto and look around and formulate an opinion as to what's going on and then turn that into a fund or turn that into something arthur here turned it into a fund other people can turn it into something else but the the how far you have to go into this industry to start really making a difference and doing something cool is not as deep as what people

thought uh and and that's the opportunity that i think a lot of listeners should come to or conclusion that they should come to is that you can come in and figure out what's going on in the world of crypto you've got to do your homework for a year or two but then you look around and start formulating an opinion and start to test that and turn that into something viable uh and so arthur maybe you could just go in a little bit more into just the details of to how you established your own confidence in your ability to call the shots or your own confidence in

your that your your thesis and your beliefs about the crypto world were the right world would did you ever have like doubts or did you ever have like concerns or just tell us the story of just like coming into uh the the shoes of a 500 million dollar fund sure i think uh i used to say that uh in know it's a few days ago confidence is the memory of winning and i believe that uh it should be the same for everyone like when you're doing something and you keep getting certain

form validation from your action and then your confidence will just increase and i think that uh in the initial phase um i think it took a while uh because i think the microphone was synthetics and uh it took a while for the thesis to be realized but i think that it's also a come from the fact that sometimes you have to do it yourself writing the early stage where people wasn't recognizing the potential synthetics i actually um and it was doing a bear market i took upon myself

and spent i think close to one and a half months to write like a very comprehensive report um and actually that report was not perfect and uh i think even if you look at it right now it's already outdated um so i don't suggest people to go and search it but i think you have to um do something to believe in yourself and make it happen uh to just really uh put it out there and see what kind of result you get and i think the result was actually overwhelmingly positive and i think after a few months uh the market started reacting to that and then i just

keep applying the same approach to the different device protocol which i invested in you know spend time in the community help out and you know help to popularize them and also just communicate the team and see if any value we can add as much as possible and i think this approach is a it's actually quite universal it's just that not many people are doing in a crypto that time i think when you look at a like a traditional venture capital they also like lend a lot of support to their community and i think this probably also brings my experience from uh like stock investing

because i think in a stock investing world there's something called the activist investing actually not just stock i mean there's something uh there's this in the bond market as well like the investor will really uh try to effect some changes in the companies or like the stuff they are invested in and to get value out of it i think that um in crypto similarly you can actually apply this concept and actually to a bigger extent because um most of the crypto on d5 protocol very early stage and the team will very happily interact with most of the community members so

you can really uh make your uh have a lot of influence on the future on how the protocol is being run yeah so i think just just keep doing this and the feedback you get will just help you to build a lot of confidence and this is how you get to that level arthur was there a moment where it just became obvious that the next step for you needed to be starting a fund was there was there ever or did you always want to start a fund um what was the inflection point where it defines capital became a thing

what what was the signal that you got from the market that you needed to start a fund i think the signal was uh the success we have been getting uh the growth we've been getting even before the fund was formed um it was a very strong validation of our investment thesis and approach um yeah so all of it started from very low base but our return was pretty insane uh for most of 2019 and 2020 because no i mean when you look at it most fun

even even a small one they don't really outperform bitcoin uh for until 2020. uh i think i think the outperformed bitcoin part only started this year where you see stuff like pokhardo and all the stuff start going like crazy like 20x or 15x um but i think 2020 um 2019 2018 was quite hard to outperform bitcoin um because uh just bitcoin dominance was so strong during that period but we have managed to did that um and then i just keep doing that uh for most of the for

most of the time and we have been seeing our investment thesis being validated like some of our call it was actually quite public because i was a you know i was quite active on twitter very early on and most of our call was validated in a very convincing way so let's uh talk a little bit about that investment thesis arthur i i think we want to spend some time here um so defiance capital you guys say we invest in defy eating traditional finance that is something definitely bankless listeners are quite familiar

with we talk about it all the time defy is going to eat traditional finance but i find it strictly striking as is you as kind of a crypto super user a crypto native have sort of started um defiance as a crypto native fund so um you you're able to do things like invest directly in dalls there's an interesting post by uh kane warwick who is the one of the founders of synthetics uh he wrote a post on dow first capital formation i thought it was really

interesting because he he makes the point and this was i believe addressed to founders where he says hey founders like why go their traditional vc route and legal structure route when you're going to decentralize all of those things anyway why not just start with a dow first and start with that structure you know you're going to end up in in that structure to begin with so why not save some time what's interesting about i believe the way defines is structured is you can more easily invest and are more comfortable maybe prefer to invest in crypto native dow type vehicles like

that can you talk about the edge that that gives defiance and how important it is for investors to look at crypto native capital coordination vehicles like dallas yeah yeah i think that um yeah i think we are one of the one of the crypto native funds they are able to invest in dial directly because um yeah we just because we have been in the space for a very long time so we are comfortable comfortable with this kind

of structure and now also um in a way that there is some protection to the investor as well because most are structured by uh the way that the you need some majority to make some major decision and sometimes most of the time the investor will also have some some decision making responsibility as well and i think the importance is especially uh crucial for d5 protocol because i think that there's a reason it's called decentralized finance and i think um

with the recent regulatory action uh especially the latest uh i call it fatf uh guidance it was recently been delayed to october but um it's still not 100 sure that how how is it going to be and there's a potential to be a very strict interpretation of that which gonna regulate d5 protocol the same way as a centralized crypto company or you know but the d5 industry is obviously trying to um lobby for uh like a much more sensible

uh guidance but regardless i think that it's important to for the d5 protocol to find a way to gradually decentralize and i think dao is one of the best structure to do that so yeah this is why we we really support this uh this dao capital structure formation arthur um something else you guys have emphasized and we even started talking about it when we you talked about um token value accrual is this focus on fundamentals and we we've talked to a