A recent announcement from Matrixport has attracted widespread attention. The announcement stated that the Liuyuan No. 2 Fund product has been officially removed from the shelves, and the employment relationship with the relevant responsible persons has been terminated. In the future, internal employees and their stakeholders are strictly prohibited from conducting fundraising business through public or private strategies.
Liuyuan Fund focuses on Ethereum options strategy. The first phase of Liuyuan Fund achieved nearly three times the return in just a few months, and then liquidated and launched the second phase of the fund. However, under a similar strategy, Liuyuan Phase II Fund continued to fall sharply, and its current net value is less than 0.04, almost zero.
In Twitter Space, Liuyuan Fund Manager Zhao Bei gave a detailed introduction to the background of the entire incident. Matrixport CEO Ge Yuesheng also reflected on some of the shortcomings of M Station in this incident.
The audio is from Twitter on the afternoon of May 15, 2025. The first third is a question and answer session between Wu Blockchain Colin and Zhao Bei and Ge Yuesheng; the last two thirds are free questions on the microphone, and the questions and answers are relatively divergent and chaotic. Wu Blockchain has no interest relationship with Liuyuan Fund and Matrixport.
The audio transcript was generated by GPT, so there may be some errors. Please listen to the full podcast:
Small Universe: https://www.xiaoyuzhoufm.com/episodes/682624251ced30a2318ba6cb
YouTube: https://youtu.be/kfqnpNcMlLU
Colin: First, please let Zhao Bei introduce the complete background of Liuyuan Fund from its establishment to the present.
Zhao Bei: Everyone knows that I have a public account and often share my views in the group, but there is a lack of real-time records. I do options trading, unlike exchanges like Binance OK that have public real-time curve displays. Later, through the form of funds, I was able to display trading curves.
When the business started, I wanted to learn how to operate under public supervision, so I started Liuyuan No. 1 from scratch. I invested half of the money myself, and a few friends invested the other half, a total of about 100 ETH. Three months later, the return on Ethereum doubled, and the return on U tripled, and then I liquidated.
When we liquidated the fund, we explained to investors that we were very satisfied with the profit of three times in three months and then liquidated the fund. We showed the complete profit curve, and Liuyuan No. 1 received a lot of attention at that time. During the period, we experienced three drawdowns of more than 50%, but we finally doubled the profit and liquidated the fund.
Later, I wanted to make money with everyone, so I opened the second phase. The second phase continued the strategy of the first phase, but it was clearly stated that this was a high-risk strategy, either zero or double, and it was a purely gambling trading idea. We marked the risk warning in a prominent position.
I set an investment limit: 5-100 ETH for a single investor, and I invested 80 ETH to ensure that the risk I took was the same as any single investor. This is the binding of interests.
Colin: The strategies for Phase I and Phase II are the same. Can you explain the strategy in detail?
Zhao Bei: The strategy is very simple, which is to long on Ethereum and reduce the cost of long through option trading. This can improve the efficiency of capital use and make more money with the same leverage. But if the direction is wrong, there is nothing you can do. The specific strategy details are not convenient to disclose to non-investors.
Colin: Please let Ge Yuesheng introduce the situation of the fund business and your thoughts on this incident.
Ge Yuesheng: Hello everyone, I am Ge Yuesheng, CEO of Matrixport. I am here today to clarify some of the company's situations. Judging from the results, Liuyuan Fund No. 2 did fail. Investors suffered losses, Mr. Zhaobei also suffered losses personally, and the company also faced great pressure from public opinion. We have already reviewed and reflected on it.
When Liuyuan No. 2 was launched, it was the early stage of our strategic product. At that time, our thinking on the product was indeed not mature enough. We summarized two main problems:
First, Mr. Zhaobei is an employee of the company, and there is a conflict of interest for employees to issue strategies on the company platform. This is the first mistake we made. Employees should not be allowed to issue any strategies on the platform.
Second, Liuyuan No. 2 is a public offering strategy. Our platform strategies are divided into private domain and public offering. Private domain strategies require the approval of strategy managers and provide access codes to invest, while public offering strategy customers can directly search for investment. At that time, the operation team also hung a banner promotion on the homepage of the APP.
We reflect that high-risk, high-return strategies like Liuyuan No. 2 are indeed not suitable for public offerings, and should not be promoted with banners. However, it should be pointed out that Liuyuan No. 2 clearly marked the risk warning of "either triple or return to zero" in the strategy introduction, and Mr. Zhao Bei also clearly informed the strategy risks on various occasions. Investors invested with knowledge, which needs to be clarified.
Based on these issues, we have taken the following measures:
1. Clear all strategies issued by employees, including private strategies, and prohibit employees from issuing new strategies on the platform
2. Strengthen the launch standards and risk control requirements for public offering strategies, especially subjective strategies, and conduct strict due diligence and set stop-loss requirements
3. Issue interest rate coupons to investors of Liuyuan No. 2 to match their investment amount
It should be noted that the interest rate coupons are our care for investors, not compensation. Considering that we are a custody and asset management platform, the interest rate coupons are the most direct way of care. We are also willing to listen to the reasonable demands of investors, such as adjusting the amount, extending the term, or changing to customized solutions such as loan interest rate coupons.
Our attitude is to fulfill our responsibility to care for investors. We admit that there were some immaturity in the handling of the incident, and hope that this communication will reduce the spread of false statements in the community and social media.
Colin: The scale of the first phase was 100-200 ETH, and the second phase suddenly expanded to 1000 ETH. As a new business, did you consider the risks of the second phase fund at that time? After the dramatic increase in funds, can the strategy of the first phase be replicated in the second phase? Is there any lack of risk control?
Ge Yuesheng: This problem is indeed more relevant to us. There were problems with the approval system for the strategy issuance process of early products. At that time, employees were not prohibited from issuing strategies, but they were not encouraged either. Issuing strategies is a personal behavior used to show market views. However, Liuyuan Phase I was a private domain strategy, and there was an obvious lack of approval process when Phase II was converted to a public offering strategy. Later, when the net value fell, we made rectifications and improved the online approval process, which required multiple people to review and prepare materials. This was indeed caused by the immature design of early products.
Zhaobei: Regarding the scale of funds: the actual gap is not as big as it seems. When the first phase was liquidated, it was over 200 ETH. After tripling, the gap with 1000 ETH is about 5 times. We set a hard cap of 1000 ETH to prevent the expansion from being too fast. At that time, many people wanted to invest but couldn’t.
Regarding strategic risks: To earn three times the profit, you must take high risks. This is inevitable. Option products are inherently volatile. The previous clear reminder of "zero or three times" is to eliminate risk control issues in advance. If you set a stop loss, you may be forced to close your position before the market rebounds. We are not an arbitrage or quantitative fund, but a clear high-risk strategy. The purpose and risks of the raised funds are disclosed truthfully.
Colin: Many investors in the second phase invested after seeing high returns in the first phase, and they may have underestimated the risks.
Zhao Bei: High returns must correspond to high risks, this is common sense. There were three 50% drawdowns in the first phase of the real market, and the data is public. I also dissuaded many people at the time, but mature investors should make their own judgments.
As for the follow-up plan, I won’t do it. Gambling with other people’s money is too harmful. I originally wanted to build a copy trading system, but option trading is not suitable for copy trading, so I started to build a fund.
Audience: I work in traditional funds. Many funds have liquidation lines, such as 70%. Can you talk about whether this product should have a liquidation line?
Colin: I would also like to ask this question: Should a risk control line be set at the company level? For example, at what level of net value should stronger risk control measures be taken?
Ge Yuesheng: Let me respond. Our public offering products now all have stop-loss lines, but Liuyuan No. 2 did not have one at the time. There are two main reasons:
1. Liuyuan No. 2 was designed from the beginning as a "zero or triple" product. It is not a traditional fund suitable for the general public managed by professional fund managers.
2. At that time, most investors came to support Mr. Zhao Bei, and the overall atmosphere was more like joining in the fun rather than serious investment.
Ge Yuesheng: We have similar thoughts internally. Exchanges can offer non-serious products such as order-carrying, but Matrixport is positioned as a professional asset management company. We launched this product to introduce external professional strategies, just in time for Zhaobei to launch a strategy.
The company must clarify its main direction. Entertainment products are inconsistent with the company's positioning and can easily cause customers to have a wrong perception. As a technical platform, we can support other platforms or strategy managers to make such products. But Matrixport itself must take a more professional route. Whether it is quantitative CTA or subjective trading, it must conform to the platform's tone.
Zhaobei: Let me add something. Regarding the question of the seriousness of investment, I would like to respond that I have also invested a lot of money, no less than any other investor. I am responsible for my own money, which means I am responsible for the investors. The form of the product may not be serious enough, but my trading attitude is serious. However, a serious attitude does not necessarily guarantee good results. These are two different things.
Ge Yuesheng: I need to clarify a few points:
1. The statement about "disrespecting investors" is a misunderstanding. I was discussing the product positioning issue at that time - should it be a serious fund product or a community product?
2. We do not think direct compensation should be made because the risks have been fully disclosed. However, the compensation amount for the interest rate coupon is actually equivalent to 100% of the investment amount.
3. If investors are not satisfied with the interest rate coupon, they can negotiate other methods, such as loan interest rate coupons
Zhaobei: The key reason why the Liuyuan incident triggered public opinion is that private equity funds should be limited to the relationship between managers and investors. However, due to my personality and the interaction with investors, it became the focus of public opinion. Many people who did not invest were also paying attention. Investors took the initiative to disclose their investment information, resulting in not only me but also some investors being ridiculed. This is a lesson. In the future, I should not publicize my investment in a big way.
Ge Yuesheng:
1. Regarding products affected by the FTX crash: We have issued debt certificates and will provide solutions after FTX’s compensation plan is finalized. We will fully cover the losses of fixed-income products.
2. About Liuyuan No. 2: It is different from the FTX incident. The risks of Liuyuan have been warned in advance, and it is not a stable product. The amount of our interest rate coupon compensation actually exceeds the investment principal. This is not compensation, but a caring measure. If any investor is not satisfied with the form, you can contact us to negotiate other methods.
Direct compensation is unreasonable. If compensation is given to high-risk products, it will have an impact on other products. However, we have provided substantial compensation in the form of interest rate coupons.
Audience: The platform’s practice of directly announcing the dismissal of the person in charge after the incident makes people feel like it is cutting off responsibility.
Zhao Bei: I took the initiative to resign, and there was no case of dismissal from the company. The claim of cutting responsibilities is not true, but thank you for your concern.
Ge Yuesheng: We waited until the Liuyuan incident was over before issuing the announcement because we considered that Zhaobei had been focusing on this matter. Considering the pressure he received in the community and the company's system, a negotiated resignation would be good for both parties.
Audience: Why not make direct compensation?
Ge Yuesheng: Direct compensation is unreasonable. The amount of the interest rate coupons exceeds the investment principal, which is real money compensation. If you are not satisfied with the form, you can negotiate other methods. However, as a platform, direct compensation will have a negative impact and may affect the risk positioning of other products.
Ge Yuesheng: Regarding risk control standards:
1. We will set a forced liquidation line for each public offering strategy (except private domain strategies)
2. The 70% standard will not be uniformly adopted. Different strategies (arbitrage, CTA, subjective trading) will have different requirements.
3. New product lines are being developed: including principal-guaranteed products, with risk pricing clearly marked
4. Investors can choose to take more risk to get higher carry
Ge Yuesheng: Our products are divided into two categories:
1. Shelf products: DeFi projects such as Agenda are suitable for users who are familiar with DeFi to participate on their own. We mainly provide product packaging and technical services, and the risks are borne by the users themselves.
2. Asset management products: including fixed income/current conservative products and strategy products (risk control indicators such as maximum drawdown will be clearly defined)
For asset management products, we will clearly specify the protection terms, such as: products with guaranteed principal and interest, products with guaranteed principal but not interest, and products with maximum drawdown protection.
Ge Yuesheng: For products affected by FTX, debt certificates have been issued to investors. After FTX's compensation plan is determined, we will formulate a specific compensation plan, and we will fully cover the losses of fixed income products.
Audience: I would like to ask Mr. Ge a question. Because I think Matrixport has always been a more serious asset management platform. In addition to Liuyuan No. 2, there are many other types of funds, such as fixed income funds. Will these funds be more clearly classified and labeled in the future? Let users clearly distinguish the risk characteristics of different funds, instead of finding out that it is a high-risk option product that may return to zero after investing.
Ge Yuesheng: Yes. We are advancing this work and will make a clearer classification of funds and provide a clearer explanation of their potential drawdowns.
Audience: So can it be understood that: you were mainly long on leverage at the time, but you didn’t expect the market to continue to fall without rebounding?
Zhaobei: You can understand it this way. The underlying is indeed leveraged long. As an Ethereum-based fund, the core is long. But we will use some means, such as when the decline in 3x leverage reaches 50% (usually it should be liquidated), we can continue to maintain it through option strategies. The problem is that the decline of Ethereum this time is far beyond expectations, and there is really no way to save it.
Audience: So when the net value dropped to 0.5 or 0.3, did you consider increasing your position to recover the losses?
Zhaobei: No. Because it is calculated based on the nominal value. For example, if you open a nominal position of 100 Ethereum, when the price of Ethereum drops by half, the nominal value is halved. There is no such operation as "add 100 more" because the contract has not expired. We mainly hedge risks through other means.
Audience: I would like to ask Zhao Bei, what lessons have been learned from this incident?
Zhaobei: I have too much experience. The most important thing is to be humble. I used to look down on others and offended many people, which led to a group of haters.
Audience: I really want to hear a review. For example, was the judgment on Ethereum wrong? Or was Bitcoin underestimated? Or is this cycle different from 2021?
Zhao Bei: In fact, the rise and fall of Ethereum does not have such a big impact on the strategy. If you look at the net value curve, the net value was fine when it fell from 4,000 to 3,000, but it fell very quickly when it fell from 3,000 to 2,000. The key is that the decline exceeded the threshold. From the perspective of the exchange rate, it fell by 60%. This strategy may only be suitable for Bitcoin. Ethereum may experience a 60% decline once a year. We happened to raise funds in May and encountered it in August. This is also a matter of luck.
