Dialogue with trader Minion: How does Smart Money find Alpha on the chain?

Dialogue with Traders Episode 4, this episode’s guest Twitter @ 0xminion

Guest Keywords:

• For OG Degen, who entered the scene in 2018, research and data are his weapons of trade;

• An expert in on-chain transactions, the address was once marked as Smart Money by Nansen;

• He has his own trading strategy for value coins and Meme coins, and has captured $MAGIC $PENDLE $CANTO $BOME $SLERF $DEGEN

TL;DR

1. Capture $PENDLE and $MAGIC through Focus on Small and Medium Caps

The key logic is as follows

• Market capitalization between $10 million and $100 million, not listed on centralized exchanges

• The mainstream narrative in the cycle

• Develop an exit plan based on the traders trading psychology

What impressed me was that Minion clearly knew whose money his trading strategy was making, as well as the exit logic:

• Tokens with a value of USD 10 million or even lower to USD 100 million are mostly traded on-chain by experienced “gamblers” and traders with a small capital scale.

• Tokens with a value of USD 100 million to USD 500 million are listed on relatively large exchanges and are traded by some secondary funds.

• Tokens worth 500 million or even higher are traded by some relatively conservative American funds, with the goal of obtaining the alpha of a small currency, which requires relative certainty and good liquidity.

Minion only earns money from the first part, so I think in the process of trading, we must clearly know the buying logic of the latter two to ensure the winning rate of the transaction. The extended inspiration is that the buying orders faced by the project party at different stages are different, and the corresponding market strategies and communication paths should also be different.

The selling strategy is to choose to exit based on the gamblers psychological expected returns. For example, in a bear market it may be 2-3 times, and in a bull market it may be 5-10 times. In other words, sell before everyones consensus selling order appears. This depends on the Minions immersion in the circle, which brings experience and intuition.

2. Blindly following Smart Money is not a high-win trading strategy

Smart Money says copying Smart Money is not a good strategy because you cannot completely copy the trading operations of Smart Money. Sometimes they will enter and exit quickly and make many real-time adjustments based on the market. They just show you the side they want you to see.

In addition, real smart money does not want people to know that they are smart money for a long time. They often change their addresses for reasons of security and to avoid being robbed by copycat robots. So Smart Money is just a factor to prove your investment logic.

3. How to keep your trading strategy effective: divide trading into main tasks and side tasks

Minion will study all tracks, whether they are good or not. The tracks that they are good at or that they think will run through the entire cycle, such as AI, will be taken as a main task. The tracks that they are not good at, such as inscriptions and runes, will be taken as side tasks. The main tasks are used to make money, while the side tasks are more for not missing out on Alpha and experiencing industry changes.

For Minion, as long as there is an information gap between on-chain transactions and traders in centralized exchanges, he believes that his strategy will continue to be effective.

Original Interview

FC:

Lets start with your name. Why is it called what it is now? Can you tell me the story?

Minion:

Its actually very simple. I like the Minions in cartoons, and I chase after the evil man to be my master. And in English, minion is the lowest class of people, those who are more hustle, and have no rights, just work. So there are two meanings, one is that I like Minions, and the second is the meaning of English itself.

FC:

Before I start, let me first tell you why I invited Mr. Minion to come here today. I wrote a few keywords. The first one is that you were in the industry in 2018, right? You should have been in Huobi at that time?

Minion:

Yes, I was actually at Huobi Australia in 2018.

FC:

Australia was pretty good in 2018. It was the end of HSR, and there were still some developers there, because I went to participate in the roadshow there. Then the founder of Curve also bought a house in Melbourne. Hasn’t the market paid for it today? The second reason (for inviting you) is that I remember when we talked before, most of your assets were traded on the chain, which should be 80%, and there should be three or four of your addresses on Nansen that are marked as smart money for you. The most important thing is that I looked at your portfolio, whether it is value coins or Meme, you have captured them. You also came to our fund to share a long time ago. I don’t know if DegenScore is still being done now. Anyway, I remember that you should be ranked in the top 5 before, right?

Minion:

Yes, it has declined now, because the position is large, and I play less of some things, so I should be in the top 20 or 30 recently.

FC:

How is this ranking determined?

Minion:

The DegenScore team has created a metric themselves, such as whether you have participated in FYI, SUSHI mining, how many times you have interacted with Uniswap, whether you have participated in various stablecoins, and so on.

FC:

OK. I think today I want to talk to you about several parts: the first is your trading growth experience, which I think is quite important because it determines why you formed this trading strategy; the second part is actually mainly about what style your overall trading strategy is now; the last one is about your personal growth. How about we start with the growth experience, that is, if it is convenient for you to talk about your past experience in the financial industry, and for example, some of your more important trading experiences?

Minion:

No problem. Actually, I don’t have much experience in traditional finance. I entered this industry right after graduation. Before graduation, I was doing some IT consulting, data analysis, etc. Because my academic background is in computer science and finance, I was doing some IT consulting. Later, I accidentally entered the industry because I had a graduate course that asked us to write a report on blockchain. After I finished writing the report, I found it very interesting, so I started to study it myself. That was probably in the second half of 2016. Then in 2017, the four major exchanges in Australia were very small, and there was a 10% interest rate spread every day, so I started to do arbitrage on my own, doing it every day. Later, one day I found that Bitcoin had risen from US$1,000 to US$2,000. It was in January, February, and March of 2017, and then I found that it was better to buy Bitcoin directly than to do arbitrage in this way, so I started to study Bitcoin mining, and then Ethereum, to ICO, and then in 2018 I officially started working in Crypto. At that time, Huobi Australia did everything, including industry research. However, during the bear market in 2019, there were not many job opportunities in Australia, so I went back to traditional finance for a while, mainly doing data analysis, which was actually not very related to pure finance. Then at the end of 2019, I wanted to find another Crypto-related job, but there were few in Australia, so I targeted the Asian market. Finally, I joined TokenInsight and did some work on project research, industry research, and rating models. Later, at the end of 2020, I went to Huobi Global Station to work on listing and investment. Then at the end of 2021, I left Huobi and joined the current team in Hong Kong to do investment research at GBV. This is my general experience.

FC:

I think during this time at Huobi, I believe you should have a better understanding of what projects the exchange needs, right? And at TokenInsight, you should mainly use data to analyze fundamentals. I think these two areas are of great help to people, I understand.

Minion:

Yes, almost.

FC:

OK, next question. I want to know when you lost the most or earned the most. The core purpose is to understand which transactions laid the foundation for your current trading style?

Minion:

The one who made the most money was probably the last market cycle. In this market cycle, there aren’t that many opportunities. In the last market cycle, MAGIC had the highest multiple, and the one who lost the most was probably Memecoin in this cycle.

FC:

If you were asked to describe your trading strategy or trading style, how would you describe it?

Minion:

I am more of a gambler. I look for information gaps on the entire chain. The essence of my projects is to find information gaps, that is, the market is not aware of this matter, but I have come to a conclusion through research, such as project fundamentals, research on the entire industry or track, and research on competing products, plus some analysis of on-chain data. I think this project may explode in the next 2 to 6 months, and the valuation of this project is relatively low, and no one is discussing it, but the team is also okay. Basically, it is carried out in the form of information gap.

FC:

I want to know if the so-called information gap you have now is the reason you made money for the first time because of the information gap? Or is it because you lost money before, for example, because I listened to others, or I lost money in a form, so you found this trading strategy?

Minion:

You have to lose money first. In fact, I think the reason for losing money at the beginning is that the analysis is not in place, or not comprehensive enough, that is, you only see one angle. For example, a friend told me before that Cardano will definitely rise. I asked him why, and he said that the smart contract has not been released yet, and it needs to be released. In other words, there is a so-called expectation that it needs to be released in the future, so it may rise. Then my analysis is that he did not see the whole picture, that is, he only saw that the Smart Contract has not been released, but what kind of reputation does Cardano have in this industry, or what kind of market value is it, and what is the ecosystem like? When you lose money at the beginning, it is generally because you don’t think about this matter from a very comprehensive angle, right.

FC:

In fact, you are judging from a single dimension, right?

Minion:

Yes, thats right.

FC:

Then lets talk about specific trading strategies. What is your current trading strategy and framework? I hope it may include several dimensions, such as the allocation ratio of your entire position, the allocation of funds, some buying logic, judgment logic, including exit logic. If you can conveniently talk about it in conjunction with your target, it may be clearer. Lets divide it into two series, for example, Pendle and Magic are one series, right, and the other is the Meme series. I think these may be two different trading methods.

Minion:

Lets talk about Pendle and MAGIC first. According to the last cycles play method, we only look at projects with a circulating market value of 10 million to 100 million US dollars, and then pure on-chain projects that have not been listed on exchanges. For those that have been listed on exchanges, 90% of the time, I dont know how to play. I only play on-chain projects because their multiples can be large enough. That is, a 10-fold increase from 10 million US dollars to 100 million US dollars may be completed in 3 months, but if you increase from 100 million US dollars to 1 billion US dollars, it may take half a year or even a year. Because the larger its circulating market value, the larger the amount of funds required to enter the market, and the slower it will rise, so I only look at some opportunities in relatively small and medium-sized stocks. The advantage of doing this is that your multiples can be large enough and the tolerance rate is OK, because if a project with a market value of 10 million US dollars does not rise, then you are basically dead. This is my logic. Of course, you need to cooperate with some other angles or some data to do an in-depth analysis. I bought both Pendle and MAGIC when they were close to their historical lows, and then sold them when they were listed on Binance.

The reason for buying Pendle was that it was actually close to a bear market at that time, the price was already low enough, and the team had been working on it. So I thought I might as well take a gamble, because its market value was very small. Of course, the liquidity was also very poor, and you couldnt buy a lot. According to my own judgment, or how much risk I was willing to take to make this purchase. After buying, I usually get 5-10 times the investment in a good market, and then look at it when it is more than 10 times. Sometimes I can get 20 times. If you think you cant get 20 times, you may leave at 10 times. Then my general strategy is to take some good targets to the exchange, and then directly take profits after the exchange. Pendle and Magic are two typical examples. Why did I say 5-10 times the investment just now? Because gamblers all think so, but all the gamblers on the chain, at least the ones I know, basically get 5-10 times the investment in a bull market, and the remaining profits may or may not be taken. If the market is not particularly good, the return may be 2-3 times the original investment. The profit is the so-called free ride, which depends on how much confidence you have in the coin. It mainly depends on the fundamentals of the project, the possibility of potential listing on the exchange, and some comprehensive judgment of the data.

The other half is Meme Coin. I think Meme Coin is more random. I dont think there is a very structured strategy. I mainly caught Slerf and Bome. The others are likely to lose money, or not make much money, such as making 20% to 30%. Of course, there is Degen, which is actually in the middle of fundamentals and Meme coins. Because Degen is a proxy of Farcaster. Although it is a Meme coin, Farcaster does not have its own token. So from the perspective of gamblers or traders, Degen is a proxy of Farcaster. If Degen has a circulating market value of 10 million US dollars, it is too small for the Farcaster ecosystem, so it must rise. But is it about the same if it rises to 100 million or 500 million? Maybe it is, so Degen is a special case, and the remaining two are more random.

Bome is a project that I recruited several interns during this cycle. They spent the first two weeks studying Meme coin, including launching a Meme coin on Pump.fun to study how Meme coin works, how much liquidity it has, and how to market it. When Bome was launched, it was the second or third day after I finished studying Meme. I was thinking, should I learn Meme from Bome? So it was a coincidence. I subconsciously said I wanted to buy it, and then I bought it. After studying it, I looked at the market and felt that the volume was okay, because the turnover was quite large at that time. Later, I told the team that I wanted to get it on a second-tier exchange, and then I took a nap and got it on a second-tier exchange. After that, I looked at the market again and felt that it might go up again, so I bet on Binance to go online. Three days later, I found that Binance had perps. Under normal circumstances, if it is perps, it should be listed on the spot. Although it cannot be guaranteed, there is a certain probability. So I said, why don’t I get it on Binance for spot trading? Later, Binance actually went on the spot, and it was very fast. I also thought it was quite amazing. It was listed on all the major exchanges so quickly. I asked if you need to charge this or that coin, but later I found that it was not right. After the whole market, the gamblers I knew began to ship a large number of goods. I also basically took profits at that stage, because the multiples were enough. I wanted to get a higher multiple because I didn’t have enough positions at that time, but the reason why I decided to take profits later was basically because the market was not good and the volume began to go down. I felt that my multiples were enough, so taking profits was also a good choice.

FC:

I understand. I have a follow-up question. Did you look at the fundamentals when you bought Pendle? Because in the early days when its market value was less than 10 million, I think what it did was relatively niche, or relatively niche in the eyes of retail investors, and most people probably didnt know what it was doing. So if you look at it purely from the perspective of retail investors, do you know what you are buying? Do you worry about this when you buy?

Minion:

I look at the fundamentals from a speculative perspective. My understanding is that if your fundamentals are good, then this should have been reflected in the price. When your fundamentals are not so good, but you have the potential to become better, when this fundamental becomes better, that is when I enter the market.

Then, regarding the retail investors’ perspective, in fact, in the range of $10 million market value, there are no retail investors, and only “gamblers” are playing on the chain. In fact, I actually summarized a gambling table problem in the last market cycle. That is, in each market value range, there will be a relatively large percentage of a certain group of people playing. For example, if the circulating market value is $10 million to $100 million, for pure on-chain coins, in most cases, experienced gamblers will play, or those who like gambling, and relatively experienced traders will play, but the amount of funds is not particularly large.

Then, the coins with a circulating market value of 100 million to 300 million, 400 million, or 500 million that are already listed on major exchanges are for secondary funds with some fundamentals. Due to compliance or legal issues, they can only play with these coins with a circulating market value listed on major exchanges. So in the case of a market value of $100 million or $200 million, this multiple is enough for them.

Then, for the blue chips with a market value of more than 500 million, these big capitals in the United States want to get a beta, thinking that the fundamentals are good and it is also easy to give an explanation to LPs. They do not need to get involved in some risky areas that no one knows anything about, and the income is also very considerable for them. You will see that every time the circulating market is pushed up, the gamblers will all be out at a certain stage. I will not play after I go to the exchange, because this is not my gambling table. My gambling table is the gambling table on the chain with a market value of 10 million to 100 million US dollars. I will not touch the gambling table of the secondary fund. So, for example, if Pendle has a market value of 10 million US dollars, in most cases, only very speculative people, or some gamblers will play with it. So as long as you think clearly about what the gamblers think, then it will rise. The logic of the rise between 100 million US dollars and 500 million US dollars is that the secondary funds think it will rise, so it will rise. As for some coins with a market value of US$500 million or more, if the big US fund thinks it will rise, then it will rise. So the people at each gambling table have different ways of thinking, so you need to consider what this specific group of people think, and thats all.

FC:

This paragraph is very well said. Actually, I heard a project owner say something before. He said that after two cycles, we suddenly found out what kind of game blockchain is playing? This game is called orderly exit of capital. It is actually very similar to what you said, that is, who is doing what kind of transaction at what time, in fact, this is the essence. Although this matter is very far from the fundamentals, I think you are right from a trading perspective. In fact, just now you have been saying that you need to find good targets in the non-consensus stage, so the next question is about your core capabilities, that is, how do you obtain this information on the chain? How many layers will you divide it into? Are there any tools or systematic follow-up methods?

My experience of non-consensus comes from cognitive non-consensus. For example, when Polkadot was considered the next EOS, I asked him, why do you think it is the next EOS? Because it is all Chinese developers. I asked him, do you know what Polkadot does? No one knows. Then I read an article by Lao Mao, which is very interesting. In 2017, he said that Ethereum is the next Bytom. You will find that people who don’t think will have a name at every stage, and it may be someone. So I think this is how I discovered non-consensus. I would ask many people, who do you think that someone is, right? Of course, this round did not fly well, and Solana missed it. So from your perspective, how do you think this so-called information is obtained, and how do you ensure that you are ahead? Is there any way?

Minion:

In fact, my overall strategy is actually a stupid way, which is to scan all the projects in all tracks. Ah, I will scan all the coins under 1,000 on Coingecko, and this scan is divided into tracks. Among the coins under 1,000, especially small-cap coins, or mid-cap coins, which projects are still working, and whether the work is in line with the proposition of this market cycle or the environment of this market cycle. You cant say that I am still working on an AMM in this market cycle, which is definitely unrealistic. Things that are in line with this market cycle, such as Bitcoins Ordinal ecosystem, or the current Rune ecosystem. Then you scan these projects, and you find that the project is still alive, and then you find that this project has gone to the Bitcoin ecosystem. At the same time, you have roughly scanned some of the Bitcoin ecosystem. You think this outlet is about to come, so can you buy this coin directly? In fact, you can, because this is something that people in the market have not paid attention to.

Then lets talk about the example of Arweave, which is Arweave upgrading its narrative to do AI. How did I find out that they started doing AI? I found that various ecological projects appeared on their Twitter, and they appeared in large numbers in a short period of time. For example, I may have seen 10 projects within two weeks, and only AR-related personnel were following these projects. There were very few followers, only about 40 or 50 accounts. At this time, you knew that Arweave was going to do this AI. You can look at the price of AR to see if it has risen on the market. At that time, it was obviously not rising. This is the so-called information gap. All information gaps basically come from Twitter and your own cognition. You scan every project, all the information sources are available, and then combine your cognition to summarize and organize. Once you hear others say that this is going to do something and that is going to do something, then it is actually not considered a front run at that time. The information gap is actually not obvious. In fact, one thing I want to do is to try my best to become a group of people other than the project party, and I am the first to know.

FC:

To be honest, I knew that AR was going to do AO half a year ago, but in fact, those who were thinking about this with him did not think that AO would have such a big market response. So my question is, you said you scan less than 1,000, and I scan it, but first, how often do you scan? Second, how do you determine, for example, when you scan in the early stage, that this track is a good track in this cycle? And third, how do you know that it will definitely rise after the transformation?

Minion:

Let me answer your second question first. I think we should not deny any track. When you summarize and organize, you will say that DeFi exploded in the last market cycle, and DeFi is so mature now, so it will not explode in this market cycle. This idea is actually wrong. You cant deny its explosion. You can lower its priority. I think Defis compliance and smart contract risks are a bit high. The current innovative contract logic is more complicated. I think the possibility of its explosion may be smaller, but it cannot be ruled out that it will explode. So I will rank these according to the priority in my cognition, and then go through each track one by one after listing them. Dont deny any track, because the entire industry has been continuously learning and improving, so somehow this track may suddenly explode one day, and no one knows. Suddenly, the combination of the old and the new seems to be able to do something, and then the old reconstruction will explode.

As for your third question, I think it is because of a relative indicator, that is, the market is not aware that Arweave is going to do this AI thing, and its price has not been repriced. What does it mean? You will see that at the beginning of this year, many projects are rising, because Bitcoin and Ethereum are rising, and other tokens also need to reprice, but if you look at this picture of AR, it has basically not been repriced. So first, it has not been repriced, and second, the market did not expect this, so it is a rising situation, so it is basically a problem of market efficiency.

As for the first question, I will go through all of them very systematically at the beginning of each cycle. Within a cycle, I may divide it into two categories. For example, if it is relatively empty recently, I may scan it again to see if there are any interesting targets and what they are doing. Then, I will also find out the current progress of some targets that have risen or not risen, or how they compare in the entire track. For example, relative evaluation, A and B are in the same track, and their relative valuations change.

FC:

Next question. You should have three addresses marked as smart money on Nansen, so I want to ask, do you think it is useful to follow smart money to trade? Or how should I follow to be a good strategy?

Minion:

I think you can follow smart money, but it depends on your own cognition and strategy. Smart money is just to help you verify something at a deeper level, which is a reinforcement. This reinforcement means that if I think this target is good, and suddenly I find that the smart money address has also bought it, or I also think this target is good, then your confidence will be strengthened. But if you just follow the smart money to buy whatever I buy, I think the return is not high. Because there are many personal strategies for buying things with so-called smart money, for example, I think this coin will rise, and after half a year I will buy a little to play around, and then I will forget about these things. It doesn’t mean that I am very serious about buying this coin, because my position will be relatively small. Why do I change addresses frequently? One is because of security issues, because I play more projects, and more projects will lead to the risk of this contract, including smart contract authorization, many accidents have occurred, and some cross-chain problems, etc. Of course, some people will say that they can go for unapproval, but I think the gas fee is not particularly worth it, so I usually just change the address directly. Another reason is that I don’t particularly want many people to know my address, or many people to know to follow my address to buy, because following my address may sometimes lead to losses, and the losses are quite large. This is something I have tested internally, that is, if you just follow my strategy to buy, you will basically lose money. Because my method is sometimes fast in and fast out, or sometimes I will watch the market all day, or watch the project all day, and by the time other people realize this, it is already a bit late. So there are actually two main reasons for changing addresses. The relatively larger one is the security issue of the address. Secondly, this address is followed by too many people. I will also change it, because I have an address that every time I buy some small coins, some robots will follow me to buy, and some robots will use the MEV strategy to reverse frontrun me, causing me to be unable to buy in sometimes, and then there will be one here, so sometimes I am relatively diligent in changing the new address, that is, I deposit Ethereum into the exchange, and then withdraw it from the exchange to a new address.

FC:

My understanding is that the real smart money doesn’t want people to know that they are smart money for a long time, right?

Minion:

Yes, he will only let you see the things he wants you to see.

FC:

I find your words quite surprising. In fact, you should first think that a target is good, and then use smart money to verify whether it is good, rather than just using smart money to buy it.

Minion:

There is nothing wrong with using other peoples perspectives and operating methods to verify that you think the target is good. However, if you have preconceived ideas and buy it completely with followsmart money, the winning rate is actually not as high as everyone thinks.

FC:

Got it. I have two more questions. First, do you have a stop doing list? Have you ever thought about when your trading strategy will fail, or why it will fail?

Minion:

At the end of last year and the beginning of the year, I was frantically looking for inscriptions and all kinds of things. When I was frantically looking, I actually thought about this question, that is, whether my entire strategy would continue to be effective. Later, in practice, it was still effective, but the degree of effectiveness was not as great as I imagined, because everyones attention was too scattered. The premise for my entire strategy to be effective is that there is an obvious track rotation, such as the AI rotation before the game. However, at the beginning of this year, the entire market situation was that everyone was exploding in everything, everything was very scattered, and there was no obvious main task. My overall strategy was actually not so efficient.

In fact, I divide the trading method into main tasks and side tasks. The main task is to find some obvious or important targets, or some tracks that you are good at. The side tasks are scattered things, such as some things with poor liquidity. I cant play them myself, but I need to understand and study them. For example, it is obvious that the liquidity of the inscriptions at the beginning is very poor. It is not instant liquidity. It is done in the form of a pending order and an NFT. I don’t like this form very much, because you see that the multiples are large and you see that you can make a lot of money, but when you want to place an order to sell, you can’t sell it, so you have to keep lowering the price, and you may be able to sell it at a very low price. I don’t like this kind of thing. This is similar to one of my side tasks.

The main task is something I can understand, or something I like. For example, I think AI should be the track throughout the entire cycle in this cycle, so I need to pull it out as a main task. Some other things, such as Solana, have changed their perspective in the market because of Meme and various other reasons, so Solana should also become a main task. As for the side tasks, such as Meme, I think it is necessary to study it in depth and understand it, but it does not necessarily mean that I have to make it a main task, because I think it is difficult to make a lot of money by holding a large position, so I put it in a side task. I will split these entire tracks and make some small money or lose some small money in a scattered manner. Because I study all tracks, I will look at any track whether I am good at it or not. But the ones I am not good at can be used as side tasks, and the ones I am good at or that I think should run through the entire cycle can be used as main tasks.

I think my overall strategy will always exist as long as there are gamblers on the chain and as long as there are mainline tasks, or as long as the initial circulation is relatively small, below 50 million US dollars, instead of listing every project on the exchange directly after issuing coins. If all projects are listed on the exchange after issuing coins, then my strategy will be useless. However, as long as there are projects that do not immediately go to the exchange after issuing coins, and the initial circulation is relatively small, and the proportion of unlocking in the future unlocking cycle or the potential selling pressure is reasonable, I think my overall strategy will continue to be effective.

FC:

OK, I understand. The last question is, if you are training your colleagues, what do you think is the most important thing for them to do a good job in trading? And what is the most important thing they should not do?

Minion:

What is the most important thing in trading, right?

FC:

Yes, what is the first or most important skill or knowledge you want him to master?

Minion:

For me, the most important thing is a clear understanding of the industry and a solid research foundation, because with a solid research foundation, you are not afraid of anything. In this industry, whether you are a project owner, a data analyst, an investment researcher, or a trader, any position or role in the industry requires a deep understanding of the industry. The worst thing to do is to lose your mentality, which is fomo, or this type of mentality.