Conversation with trader Timo: After $Trump, does Ai Agent still have a chance?

The following text is compiled from the series Twitter Space #TraderTalk, hosted by FC, founding partner of SevenX Ventures, Twitter@FC_0X 0

Guest of this issue: Timo, AI investor, Twitter@timotimo 007

If you want Alpha, play something you can understand

In Web2, Timo is a VC specializing in investing in the primary market AI track, with layouts of many AI companies in different directions in China.

And in Web3, his trading journey began with buying Bitcoin in 2017, playing contract rolling in 2019, with the highest floating profit exceeding tens of millions, but he blew up several times and lost most of it. Starting to play on-chain from the beginning of last year, he has played with inscriptions, graphic coins, pre-sales, and then it’s the zoo and AI.

The way AI targets are viewed is completely different from looking at those coins in the zoo before. It’s still important to play with things you can understand. If you just blindly follow others, you will only end up becoming their liquidity in this market.

Timo’s strategy for trading AI targets on the chain can be summarized as mainly playing the second segment, that is, looking for Alphas with potential returns of more than ten times and relatively high upper limits, while doing well in position management, with a single currency investment not exceeding 15%. So far, this strategy has a winning rate of over 90%.

In addition to searching for Alpha on the chain, Timo’s large position Beta is all placed on the exchange, including BTC, ETH, SOL, DOGE, PEPE, and AAVE.

What to buy: Which AI targets are worth paying attention to?

Overall, the AI of Web3 is actually following the AI of Web2, from the application of technology, to narrative, to the level of talent, so the trend of Web3 AI can basically refer to the development of Web2 AI.

Specifically, in terms of the industry chain, there are problems to be solved in every aspect of Web3 AI, and where there are problems, there are new opportunities.

1. Protocol Layer

When the intelligence of the Agent itself reaches a certain level, the interaction between Agents should be able to intelligently and cross-ecosystem/platform, and this interaction requires underlying protocols. Currently, no one is actually doing this.

2. Model Layer

Currently, many models are general large models, understanding a little bit of everything, but not really understanding everything, so if you want the model to perform better and more professionally in a specific field, you need to train the model with proprietary data. There have been some models specifically for solana in the market before, and there will likely be more proprietary models in the future, presenting many opportunities. In addition, the inference cost of the model is also an area that can be improved.

3. Data Layer

Just as people need to find high-quality learning materials, models also need high-quality data. However, most of the data is invalid and needs to be filtered, cleaned, and labeled. Scale AI, a company specializing in data cleaning in Web2, has a valuation of over 10 billion U.S. dollars.

4. Tool Layer

Comparing the model to the human brain, it needs tools to accomplish tasks. Currently, many projects that want to become agents will face two problems in the tool area: first, whether they have the ability to intervene; second, whether the tools are willing to let them intervene. Therefore, Timo believes that creating an open platform where everyone can call various tools through this platform would have great potential.

5. Application Layer

In Timo’s definition, the application layer is actually various AI Agents. In Web3, what we need to focus on is: applications that can attract the attention of Web3 users and make them use them frequently, which is also why many projects are telling the story of AI+DeFi. But currently, it is more basic, staying at the level of fundamental and technical analysis of tokens, and cannot automatically execute the desired trading strategies. So there are also many opportunities here, but high-quality on-chain data is needed to train the models.

How to Buy: How to operate playing the second stage?

The gameplay of the two segments can be summarized in two steps: first analyze the fundamentals, then analyze the market. Fundamental analysis is to judge whether a target can be bought, while market analysis is to judge where to buy.

Fundamental analysis can start from four aspects:

The first, narrative, is fundamentally the positioning of the product

Narrative determines the upper limit of a project, a good narrative can attract enough funds in the market to FOMO. Timo suggests that everyone can focus on three types of narratives: 1) those that users may use more 2) able to cut liquidity 3) infrastructure.

The second one, control and planning, is whether there is a strong institution.

Why play projects with a high degree of control (strong plate)? In the previous conversation with President Mai, he explained in detail. In summary, strong plate has a relatively longer life cycle and greater room for imagination, it is a game where both the plate and retail investors win. It is also very simple to judge if it is a strong plate, go to GMGN to see the holding wallet. If the wallets in the front row are mostly small fish, those who bought in early and made a lot of profit, basically all of them are plate players.

The third, products and technology

As the market matures, pure storytelling is becoming increasingly difficult to buy into, and attention needs to be paid to products and technology. In terms of analysis in these two aspects, Timo suggests that if you don’t understand it yourself, you can form a team with friends, some people can read the code, some people can be responsible for ‘feeling’ the chain, it is extremely difficult for one person to do all the analysis well.

The fourth, the background of the team.

Timo believes that if Open AI’s DEV can score 100 points, the average level of AI DEV in Web3 may only be 30 points now. However, this industry is gradually attracting more outstanding talents to join, so we should try our best to find the “regular army” and verify their resumes, scientific research results, etc. as much as possible.

Actually, having a direct conversation with the DEV team to obtain first-hand information will be very helpful in judging the project’s fundamentals. Many DEVs are willing to engage in this kind of communication.

As for the position of opening a position, according to Timo’s experience, there is no need to rush for many projects in the second phase, because there are at least two bottoms, usually when the market maker is raising funds, it is generally more reasonable to open a position at this time. The operation of the market maker can be understood by monitoring and tracking the market maker wallet.

How can you not make a mistake when playing the second section?

Pay attention to two aspects.

1. Sufficient research must be done

There are a lot of time analysis projects to do in the second stage, so don’t be lazy. In addition, Timo suggests collecting first-hand information, such as talking directly with Dev, which is more valuable information.

“I think one of the biggest problems with the second stage is that Dev doesn’t do it, you think he will do it, but he doesn’t do it, or he doesn’t do it in the first place, but you don’t contact him at all, you don’t know the situation of the project, and you still buy the second stage, that’s stupid.”

2. The position of opening a position and position management

“Always remember not to go all in. Like Munger said, if I knew where I would die, I would never go there.”

In addition, it takes patience to open a position, so don’t rush to buy the position you want. At the same time, don’t rely on so-called technical analysis, because the capacity of the on-chain pool is limited, and it’s easy for big players to suddenly smash or deceive, which can easily break the ‘support level’ of the K-line, but this does not mean that you should enter the market at this time. Still grasp these two points: first, have a sufficient understanding of the fundamentals; second, observe the behavior of market makers’ wallets. Because the on-chain fluctuations are very large, only by doing these two points well can you ensure that your ‘moves’ remain unchanged in the volatility, thus achieving a high winning rate.

Based on Timo’s own experience, most of the assets he buys are initially at a loss, for example, buying 1% and being at a loss of 30%, but his analysis is thorough enough, so he can accept it. “Because I know it will definitely rise back, so I may not care too much.”

How to value AI targets?

The reason for asking this question is that the valuation determines how to take profit. Timo believes that there is not an absolute answer and standard for valuation, and he tried to classify it.

The first kind, for a new target with an existing track, adopts the benchmark valuation method.

Basically, an existing narrative/track, the market value of Long 1 in this track is the upper limit of all targets in this track, and Long 2 is probably 20% of the valuation of Long 1. However, in the field of AI, a new situation may arise, that is: in the same track, the standard of the project that comes later surpasses all previous targets. In that case, the principle that ‘Long 2 is 20% of the valuation of Long 1’ may no longer apply.

For example, Timo believes that the AI targets in the current market only have some leading advantages, lacking a moat. Assuming that the core Dev of Open AI comes out to do a framework project, then it needs to be re-examined, with a high probability that the valuation of this project will surpass ai16z.

Second, for a completely new project with no references, it can only be valued through cognition. **

“For example, when AI16Z first came out, based on my understanding of this thing, I thought it was worth 1 B, and some people thought it would be higher. TRUMP is the same, some people think it’s worth 1 B, some think it’s 10 B, and some think it could reach 100 B, so they dare to take a large position when it’s at 10 B. This thing can only be said to be a matter of opinion.”

As for Speedy Pass, the most comparable thing is emotions, judging where the transmission chain has reached through group chats and content on social media.

Speaking of how to take profit, Timo’s method is:

There are three valuations for the project, the valuation of the first stage, the valuation of the second stage, and the final valuation. In the first stage, if the target position is reached, 30% is out, and when the second target position is reached, another 30% is released.

“Of course, this thing is a changing thing and cannot become a fixed standard. In terms of taking profit, everyone should do it according to their own acceptance of profit and acceptance of drawdown. For most people, it may be better to sell when the price is high than to wait for a pullback.”

Is the underlying itself important, or is it more important what the market thinks the underlying is?

If it is an ultra-short-term target, then what the market thinks is more important than what it is, because when speculating on the first wave of FOMO, it is essentially necessary to attract everyone’s attention and liquidity to push up the currency price.

But if you want to hold a target for the long term or medium to long term, you should be more concerned about what it is. Because the iteration of this market is actually very fast, if you can’t, it will be falsified very quickly.

When doing the second stage, you still need to spend a little more time to pay attention to the basic capabilities of a project, judge its fundamentals, because these will filter out some targets, and you have to accept missing opportunities and follow your own trading system.

How to continue to grow?

Timo raised four points:

First, shrink your ego. This viewpoint, expressed by many including Zhang Yiming in different words, essentially means to set aside one’s emotions and external noise, and see the essence of things.

Second, keep curiosity and an open mind. In the Crypto market, things are different at every point in time, always maintain curiosity and an open mind to accept. If the market’s hot spots shift, mainstream trends change, be able to follow up quickly.

“Although I am still very adamant that the main trend will be AI in the future, if it is something else, I will quickly change my own style of play and strategy.”

Third, learn to review and reflect. Don’t make the wrong thing again, it seems simple but it’s actually hard to do.

Fourth, accept opinions and doubts, don’t dwell on whether you agree or disagree, it is important to learn from some good things from the outside.

The three most influential people and three books on Timo

First, Mises, the founder of the Austrian School of Economics, allowed Timo to understand the relationship between the business cycle, government, and human economic behavior during his college years, helping him to better understand this world.

Second, Duan Yongping. “A person’s sustained success in different fields is definitely not luck but ability. One of his maxims is to do the right thing and stop immediately if wrong. I think this is far more important than being smart and hardworking.”

The third, Taleb, is the author of the book “The Fool Who Walks Randomly”. "A lot of events are actually random, and there is no so-called causal relationship that humans give to them. I think the core is to respect objective laws, probability, and black swans. ”

The three recommended books are: ‘A Random Walk Down Wall Street’, ‘The Crowd: A Study of the Popular Mind’, and ‘Built to Last’, among which the third book greatly helped Timo, who was investing in Web2 at that time, understand what a long-lasting company is.

At the end

Timo said that he started playing on the chain last year, and it actually took a long time to learn what the game on the chain is like, from dev to narrative to market making, etc. It is very important to understand the market rules before participating.

I particularly agree.

When I was playing games at a VC friend’s house before, he also told me similar things: first determine the purpose of the game designer, and then start playing the game. You need to know the rules of the game, how to think at different stages, how to operate, in order to play well. This is actually a very important reason why I do dialogue trading.

Thanks again to Timo for participating in the dialogue with traders. The previous Space audio will be updated on the small universe, search for dialogue with traders.