Crypto investor who bets on DeFi says crackdown in China could help him

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Arthur Cheong, who worked in the oil business before reinventing himself as a crypto fund manager, invested in a blockchain-based game called Axie Infinity last year.

The so-called play-to-earn game, where users can earn digital currency by participating, raised $ 864,000 through a private sale of its tokens. They cost 8 cents each at the time. They were worth around $ 124 in Asia on Friday, according to CoinMarketCap.com, which translates to a gain of over 150,000%.

Cheong said his fund had invested more than $ 100,000 and declined to comment on how difficult it would be to get out. This is an example of the kind of returns possible in his new region.

We were actually one of the first investors to see the potential of Axie Infinity, Cheong, 29, said in a video interview. Seeing how quickly he grew up definitely surprises us.

But this is still just the start in uncharted and unregulated territory, exposed to many risks that can lead to heavy losses on investments. Yields are also far from the norm: the Bloomberg Galaxy Crypto Index was up about 185% this year on Friday in Asia.

Cheong made the investment through his Singapore-based crypto-asset fund, DeFiance Capital, which he set up last year after working in the trading department of oil giant BP Plc. He says the crackdown on crypto in China could actually help the decentralized finance his fund invests in.

DeFiance Capital oversees the money of high net worth people, according to Cheong. The other major investors are Cheong himself and Three Arrows Capital, the crypto investment firm created by former traders at Credit Suisse Group AG. Cheong refused to give any assets under management to DeFiances, but said it was a nine-digit number. He also declined to give details of the fund’s performance.

Like many in the crypto field, Cheong is evangelical about his future. The fund invests in DeFi by eating traditional finance, says DeFiance Capital on its website.

In DeFi, or decentralized finance, people can lend, borrow, invest, and perform other financial functions on applications that use blockchain technology, eliminating middlemen like banks and brokers necessary for conventional finance.

DeFi is more responsive to user needs and can innovate at a much faster rate than conventional finance, according to Cheong. But it is also subject to political, regulatory and infrastructural risks.

Over the next five to ten years, the market share of traditional financial services will be removed by DeFi, he said.

The rapid growth of crypto has prompted governments to back down, with China going so far as to ban cryptocurrency transactions last month and pledging to eliminate crypto miners.

As China’s move adds to questions over the industry’s sustainability, Cheong argues it could even work in DeFis’ favor.

Centralized cryptocurrency companies are currently downsized and restricted, he said, referring to players such as exchanges. Investors will look for decentralized alternatives, which would benefit the entire DeFi ecosystem.

DeFi also faces regulatory risk. In the United States, Securities and Exchange Commission Chairman Gary Gensler has repeatedly emphasized the need for greater oversight of crypto markets, while increasingly warning against DeFi. He said in May that DeFi platforms raise a number of challenges for investors and regulators.

Attempts to bring DeFi into the regulatory fold are inevitable, said Lewis Cohen, co-founder of DLx Law, a U.S. blockchain and cryptocurrency law firm. The challenge will be how this effort will be implemented.

The DeFi world also involves many internal risks. There are regular issues, from the Compounds lending platform, erroneous token donation to persistent issues with the Pyth network, a price stream backed by some of the world’s best-known trading and exchange companies. . And then there are the raffles, where developers abandon a project and run away with the funds.

The Cheongs fund has also invested in the DeFi Aave and Synthetix lending platform, a derivatives trading platform for cryptoassets.

The cryptocurrency market remains small in Singapore relative to stocks and bonds, said Tharman Shanmugaratnam, senior minister and chairman of the Monetary Authority of Singapore, in response to a parliamentary question on April 5.

Of the 150-200 crypto hedge funds active worldwide in the first quarter of this year, less than 5% of hedge fund managers were in Singapore, PwC said in its 3rd annual Crypto 2021 Global Hedge Fund report.

2021 Bloomberg

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