Is Variational the Next Hyperliquid? | CEO Lucas Schuermann and Justin Bram

What if the next major onchain trading platform looks less like a crypto exchange and more like Robinhood with institutional liquidity underneath? Variational co-founder Lucas Schumann and Head of Product Justin Bram join David to unpack the broker model behind Variational, why they believe swaps can improve on perps for real-world assets, and how TradFi liquidity can be brought onchain without rebuilding every market from scratch. --- 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium --- BANKLESS SPONSOR TOOLS: 🔓NEAR | TRADE CONFIDENTIALLY, GET 20% BACK https://bankless.cc/near2026 🎯THE DEFI REPORT | ONCHAIN INSIGHTS https://thedefireport.io/bankless 👑BANKLESS CONTENT MCP https://www.bankless.com/premium --- TIMESTAMPS 0:00 Broker, Not Exchange 5:07 Why Brokerage Wins for Retail 8:22 What Is a Swap? 9:58 The Real Cost of Trading 11:43 Bringing TradFi Liquidity Onchain 14:44 Building Variational 23:14 From Crypto Traders to Everyone 26:42 The Next User Base 30:35 What Actually Happens Onchain? 34:00 Inside OLP 37:03 Arbitrum and User Funds 39:44 The VAR Token and 32% Airdrop 42:34 Funding the Token Model 44:11 The 2027 Roadmap 47:44 Protocol or Platform? --- RESOURCES Lucas Schuermann https://x.com/variational_lvs Justin Bram https://x.com/JustinCBram Variational https://www.variational.io/en --- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

• 0:02Speaker 00

  Thank you, Business Nation. I'm here with Lucas Sherman and Justin Brown. Lucas is the co-founder and CEO of Variational. Justin, Head of Product at Variational. Lucas, Justin, welcome to the show.

• 0:12Speaker 01

  Thanks so much for having us.

• 0:13Speaker 00

  Yeah, thank you. Variational has certainly been crescendoing on the timeline in terms of just excitement and hype, especially with the recent announcement of your guys' incoming airdrop, the TGE announcement. This is really the first time we've done a deep dive on Variational on the podcast. We've covered it in the newsletter on the website. So I think we kind of need to just start with some basics. The way that I start explaining Variational to people is like you start talking about the perk platforms, lighter, hyper liquid. And then I feel like we're like 75% of the way there to explain what Variational is, but the last 25% is kind of hard. So maybe you guys can pick up the thread from there. Lucas, how do you explain what's unique and special and different about Variational?

• 0:54Speaker 01

  Yeah, you're right, David. The 75% of it is it's a platform to trade derivatives like perps. And we do compete in the on-chain trading space like hyper liquid, like lighter, like a lot of other great teams. But the last 25% that is doing some pretty heavy lifting. The biggest difference between Variational and other platforms is we're a broker-like model, non-exchange. We don't have order books on our platform. We take the other side of the trade and hedge it against aggregated global liquidity. This allows some really unique things like zero fee trading, like hundreds of listings and crypto perps. But most importantly, and most recently, it allows our dominance in the RWBA space on two key fronts. Number one is that we're not rebuilding liquidity on-chain and then order books. We hedge directly onto TradFi rails.

• 1:34Speaker 01

  So our liquidity for our RWBA listings is proximal to, or we like to call it is equal to, on TradFi on-chain. And that's a really fantastic thing. The second biggest difference is this with this.

• 1:44Speaker 00

  I want to actually double down on the brokerage because that's, I think it's a really important point that I want to say more than just once. Let's just double click on it. So a traditional exchange has an order book. People come in and place trades. That's not what a brokerage model is. Can you really just like, let's really zoom in on the brokerage idea and how that's different?

• 2:03Speaker 01

  Yeah, so in an exchange, as you said, you have external market makers providing levels in an order book. And then retail traders come in, trade on the top of the book and get filled against an external party. On a broker-like model, there's two different ways of doing it where what we'd best describe as a principal brokerage, which means our goal is to aggregate liquidity. When you trade on Variational, Variational system takes the other side of the trade. The user is always what we call then the taker and our system is what we call the maker. And we're aggregating global liquidity from crypto exchanges, from decentralized exchanges. And most importantly for RWAs, as I was saying, from off-chain sources, from traditional finance itself. And that becomes our hedging legs, right? So in other words, we aggregate and port this liquidity into our own trading system and show that to the user. So most platforms are constrained by the depths of their books, right?

• 2:47Speaker 01

  How many market makers they can incentivize to rebuild that liquidity. And that's important, especially for RWAs where you have trillions and trillions of dollars of daily volume and liquidity depth in traditional markets, but the on-chain order books are still quite thin, right? For us, it's not a problem, right? We're aggregating routing directly to TradFi, which means that in RWAs, we're able to show order magnitude better, spreads and execution costs than competing platforms. And not just that, but also you'll very quickly see us list not just six swaps, but hundreds, right? And really bring that TradFi liquidity on-chain for a wide variety of instruments since we can now aggregate directly.

• 3:23Speaker 00

  So with an order book, a traditional exchange, you have people trading against people any to any, right? And with Variational, it's anyone to Variational. So Variational is the counterparty. And usually in the exchange context, that's actually like a boogeyman. Like you don't want to be trading against somebody in the order books who's actually like Alameda with FTX. But you guys are doing the inverse of this where it's like, that's actually the product that you guys are offering. And the value of the product is the ability to source liquidity from everywhere else in the world. And so you're competing with coinbases, you're competing with hyper liquids. And the way that you're doing that is you're just offering better execution because you're aggregating liquidity elsewhere.

• 4:05Speaker 01

  Exactly correct with one or two things I want to clarify around the edges. Number one, we see ourselves competing longer term actually against Robinhood, interactive brokers, and these other broker-like platforms. Exchanges are still a key piece of financial infrastructure, right? For example, I like to say we don't compete directly with hyper liquid. In many cases, we've historically traded and hedged there. We're not a price discovery venue. The key piece that we left out when we're describing these order books and these high-frequency traders on those levels is that that's an important part of financial ecosystem where those institutions are trading against each other really, really fast, figuring out what the fair value of something is. But just like Robinhood or interactive brokers and others, those are liquidity aggregators, right? When you're trading on Robinhood, your order is getting routed to other dealers and eventually to other exchanges downstream. Ours works quite the same way.

• 4:48Speaker 01

  But again, we're able to offer the benefits of liquidity aggregation, the benefits of TradFi liquidity on-chain, zero fee trading and beyond. So this makes a lot more sense for retail traders. But I just want to point out that exchanges are still an important part of this ecosystem. And we see ourselves more long-term competing on the brokerage side, which I actually do think is the best model for retail trading in particular.

• 5:07Speaker 00

  So why is this model better or when is this model better? As in, when would it make more sense for somebody to go straight to hyper liquid? And when would it make sense for somebody to come to Variational and trade on Variational?

• 5:20Speaker 01

  I think the institutions that should be trading on exchanges are high-frequency traders, are individuals who need that order book liquidity, right? So that's market making firms, that's much larger institutions that are running maker-style strategies and beyond. And again, let's use this comparable. Who's trading on NYSE and NASDAQ and CME Group and CBOE? You have your jumps and Janes and HRTs of the world. And then you have maybe some bank trading firms or prime brokerages and so on. But for retail traders, where are they trading? Well, they're trading for the best execution and also the ease of use of a broker-like platform. Like an interactive brokers or Schwab or Robinhood and so on. And I see it quite similarly, right? So again, exchanges have a place here. And for institutional and HFT and some other types of use cases, they're certainly going to remain the best place to trade

• 6:05Speaker 01

  because that's a natural fit. But they're an infrastructure play. We are direct facing to retail. We want to own the incline and provide the best user experience. So I really don't see long-term, if I keep building the product well and we keep working hard at it, why a user would might want to trade on one exchange directly rather than use our platform to face aggregated liquidity simultaneously. And then, as I'm really going to double down on, the benefits of our liquidity model aggregating directly from TradFi. Right? Like that's really where we have a zero to one moment happening right here with RWBA perps and swaps on Variational. We're doing something that no other platform in the space can by bringing that liquidity directly on-chain.

• 6:41Speaker 00

  I cut you off to really drill down into going into the brokerage model. Is that was the second thing exactly what you just said about porting into TradFi liquidity?

• 6:49Speaker 01

  Yeah, exactly, exactly. So this broker model is particularly powerful when it comes to asking that question. You know, how long will it take? And to what degree can we even effectively rebuild these levels of the liquidity on-chain and these on-chain order books? There's great teams and frankly, again, very big fan of the hyper liquid team and others who have really paved the way there. But for us, I think there's two, three, five, even beyond trillion dollars of daily liquidity in many of these markets in the US and Korea, Japan and then beyond. And I just think the right model here, just like traditional finance works, is brokerage and routing to where the liquidity is rather than trying to reinvent the wheel. So I think this is one of the biggest advantages that Variational has is our dominance in this space. And I was about to say one other piece, which was perps versus swaps. I'd like to dig into that a little bit.

• 7:35Speaker 01

  Swap is a new type of instrument that we're introducing. It's a type of bilateral instrument, so it's not possible to be listed on an exchange. This is how the biggest hedge funds and trading firms in the world trade is through swaps. And we're opening this type of instrument, which trades very much like a perp, but better to retail traders. And that's something we can uniquely do because we're brokerage. We can issue the other side of that swap leg. But the benefit to the retail user is you can still get the same great leverage and ease of exposure as a perp. It trades one-to-one with the underlying, but now it has a flat funding rate, right? We call it a carry cost and kind of the swaps land. And we can also list hundreds that hedge exclusively onto traditional finance rails because swaps is how the biggest firms in the world trade. So this is a really fascinating thing we're doing on the brokerage side as well as introducing a completely new type of instrument, a new way to trade,

• 8:20Speaker 01

  which is essentially what we think as better perp.

• 8:22Speaker 00

  Can you break down the swap? Because when you, when you say the word swap, I'm like, yeah, like you and a swapper. I go and I swap my tokens. That's a trade to me. I don't think that's what you're talking about. What is a swap?

• 8:32Speaker 01

  Yeah, correct, correct. So it's funny in crypto, unfortunately, we have this overloading of the term like AMM swaps and spot markets and so on. But a swap in traditional finance means a derivative, quite similar to a perp, right? A linear derivative on an underlying. You can write a swap on anything. And you might've seen, remember those Wall Street movies like The Big Short and Margin Call and so on, where you have guys trading total return swaps and interest rate swaps and credit default swaps, right? Swap is just a, it's a type of linear derivative. But going one step further for us, what does it mean? Well, it's a perp-like instrument in that it has leverage and you can long and short, right? And trade linear on any underlying. But the benefits versus perps are, number one, you have a predictable carry cost or predictable funding rate that's much flatter. Number two is it aligns with the way the largest institutions trade.

• 9:17Speaker 01

  So when we're hedging against that TradFi liquidity, we can map it one-to-one and really bring that on-chain. And number three is, again, for a swap, like it matches the TradFi level execution. So we can do things like paying dividends and really aligning with what you'd expect holding these things on traditional brokerage. So I think that's a fantastic kind of innovation that we've brought into the ecosystem. And our goal, kind of more closely stated, is to really give these tools to retail that so far have been gate-kept for the largest institutions, the largest trading firms facing prime brokers like Goldman Sachs and Morgan Stanley and UBS and so on. We're bringing that type of trading efficiency and experience to a retail audience. But for ease of explanation, it's like a perp, but better.

• 9:58Speaker 02

  Yeah, and I'll add, it's not, the swap product isn't, you know, a theoretical product that we're working on. It's actually live today that users can go test out and see what the benefits actually are. So we post some of these stats pretty regularly, but about one-fifth of the cost as your most liquid on-chain venue for getting access to a market like US 100, for example, compared to the perp that would be listed on places like Trad XYZ, maybe Finance, Bybit, et cetera. And then funding, to Lucas's point, is bounded at, I think, just sub 5% now for US 100, as the prime example. So extremely liquid, multimillion-dollar order sizes, totally reasonable with sub one basis point spread. And then for funding, sub 5%, basically capped.

• 10:42Speaker 01

  I want to cut in before we get too deep into technical mumbo jumbo, because I know great audience we have with Bankless. Many guys are really sophisticated, many guys are following from the higher-level perspective.

• 10:50Speaker 00

  We're probably pushing the limits.

• 10:52Speaker 01

  Yeah, exactly. And I was going to say fundamentally, why does spread matter? Why does these buzzwords like liquidity and bringing TradFi on-chain matter? This is a cost to users, right? There's two costs you're paying when you're trading. One is fees, which we don't have any, and the other is spread, right? So the execution cost. And the more illiquid an order book is, or a trading platform is, the more you're crossing that huge cost when you enter an exited trade, and that really adds up. So for us, we want to give that quality of trading experience that you'd expect from an interactive broker, as in a Schwab and a Robinhood. Whereas a retail trader, I don't even think, I don't even care about the order book and T-Wapping and all these complex terms. I just want to know I'm getting great execution, right, against as much global liquidity as possible. And that's really what we're doing here, is reducing costs for traders. And it's a meaningful difference, right?

• 11:36Speaker 01

  Even for small trades, as Justin was saying, you know, five to 10 times more liquid. And I think we'll see an even bigger difference as we list more things.

• 11:43Speaker 00

  Some of the ways I've heard variational described is as a portal to TradFi liquidity. You know, it's a crypto, it's a crypto brokerage, an on-chain brokerage, that you can deposit stable coins, and that's how you get your account. And you can do all the things you'd expect in a brokerage, except what you guys are doing is you guys are, you know, a quote, "portal to TradFi liquidity." That's one of your guys' competitive edges. We're in this world of tokenized real-world assets, tokenized stocks. Things are coming on-chain. The industry's been waiting for this for a very long time. It's finally seemingly here, yet still to this day, you can go to, like, Uniswap, or you go onto CoinGecko, and you can type in Nvidia, and you'll get like seven different offers.

• 12:28Speaker 00

  And not any one of them is dominant, like the winner of the liquidity of like a tokenized real-world assets. It's, it is still unclear how we really achieve the vision that we want, where we have very liquid tokenized real-world assets, because we have, you know, 17 competing standards and not really one has won out. And I think maybe that's the problem statement that you guys are saying, is like, actually, we've got a solution for this. It's not a competing tokenized real-world asset, but it is real-world assets that are highly liquid, and isn't that kind of the point that you want anyways? Talk about your guys' penetration into this market with your guys' different strategy.

• 13:05Speaker 01

  Yeah, absolutely. I totally share your sentiment. Tokenized real-world assets as a spot tokenization has a place. It's entirely unclear what the winner is. There's so many different models to get that TradFi liquidity on-chain for those. None of them are doing too well so far, but we expect greatness and expect more from that ecosystem. But my thought is, I want to add one piece to our description of variational as a bridge from TradFi to on-chain and as a broker. It's derivatives, right? We think derivatives are some of the best ways to trade for most traders, right? When you're looking for that leverage, you're looking for the ability to both long and short. And to your point, David, you're looking for one place where you can deposit USDC balance and trade hundreds of different assets, soon thousands on variational. That is the model that we're going for. And I think, just like perps have really dominated both in crypto and even RWA so far, led by HyperLiquid, right?

• 13:50Speaker 01

  Derivatives are the right solution here for most traders. So, you know, I think there's a lot of great things happening, even partnerships happening right now with some big firms, the DTCC and others, for RWA issuance and these wrapped tokens and so on and so forth. And those will continue to get better. But for traders, right? Traders who want that leverage, who want the ability to long and short, and who want the ease of use of one account, that's absolutely what we're going for. We're bringing TradFi liquidity to swaps, to perps, to one platform where you can get exposure to as many things as you want. Our vision is that, you know, variational is the gateway to global markets, right? You can put USDC in one platform, and you can trade a portfolio, not just of hundreds, not just of thousands, but longer term, we want, you know, 5,000, 10,000 different global markets, all with liquidity coming directly from the most liquid sources in

• 14:34Speaker 01

  the world, TradFi, so to speak, right? And all with the ease of use of one platform, just in the same way we love platforms like Robinhood and others, where they made it so simple, right? So easy to use, like, that's our vision.

• 14:44Speaker 00

  I want to know the, kind of, the composition of the variational team. Like, what are you guys uniquely good at? Because this seems like a hard challenge. You guys are building a derivatives platform, which is already, we're, now we're talking math, you're doing it in the on-chain context, and so there's always the blockchain engineering constraint, which is always kind of dubious. I'm glad I'm just a podcaster, so I don't have to worry about people's assets. You guys do. You guys also have to do quant stuff and port to TradFi liquidity. There seems to be a lot of moving parts that require some pretty hefty challenges. So talk to me about the team composition at variational. Like, what are you guys the best at?

• 15:21Speaker 01

  Yeah, let me, let me give you a few thoughts, and I'll let Justin fill in some more blanks. We are the best at the, pretty much the three pillars that you mentioned, with one key advantage that I'll get back to. Number one is Edward and I, our co-founders of variational, we come from about 10 years in the crypto space. Started out in the quant hedge fund area, went FX and moved to crypto, ran that in New York for some time, spent a lot of time, like, pitching TradFi allocators, very like traditional type of business model. That was acquired by one of the largest broker dealers in the space, and we ran a $250 billion book of flow, building out their electronic market-making system, their single dealer platform, all the types of technology and infrastructure that is quite relevant to what we do today at a very large scale. And then variational has a very similar founding story to HyperLiquid, actually, where we

• 16:04Speaker 01

  were a prop trading firm, active on all different eras of DeFi protocols, whether it was like DYDXV34 and Lyra and Zeta and all these, up through even HyperLiquid itself was one of our biggest wins when we were integrating early on. So, you know, this is why I can credibly say we're big fans, you know, big fans and even early supporters of the ecosystem. But it's also where we saw the kind of lack in the ecosystem of someone trying out this broker-like model, and that's how we started approaching it. But our team's backgrounds come from great other TradFi firms, like Jane Street, like IMC, like myself and Ed, having spent more than 10 years in the space, doing pretty much this exact same business, high-frequency trading and market-making. And really later, especially with the help of Justin, and kind of building out more of a product team and UX team, we also tried to expand the org and being experts in building

• 16:49Speaker 01

  the best retail platform, the best UX for retail to trade. The final one I want to double down on, David, which you asked very keenly about, is the TradFi connectivity. Look, you know, doing these partnerships with TradFi players, some of the largest in New York, Chicago, and Amsterdam and beyond, it's hard on the commercial side, it's hard on the, what's called onboarding, compliance and regulation side, and understanding and speaking their language, how to get these partnerships in place. But it's also hard on the tech side. And we came from that, you know, for a long portion of our careers, was when facing these bigger dealers and banks and so on, OTC on their antiquated, you know, fixed standards and all the infrastructure you need to face. So we consider that another big competitive advantage, is the fact that we've built this and done this for years and years and years, the market-making side of the infrastructure in crypto.

• 17:31Speaker 01

  We've integrated with as many DeFi platforms as you can name, and we take a lot of cues from that in terms of how we engineered our own platform. But the final piece, bringing it all together, is that TradFi background, right? So the relationships, the connectivity, the knowledge, like, that's how we're actually pulling off, being the bridge between TradFi and on-chain. Justin, I'll let you add anything that I missed there.

• 17:49Speaker 02

  Yeah, no, I would just say we've also really looked to our user base and our community for talent. So I actually was an early user of variational. I met Lucas in Singapore about a year ago now, and then since joined the team. And we've also hired a number of our traders, users, community members, et cetera, which has given us a really interesting perspective on what we can bring to this crypto trader cohort. Although now, as we look to next year, we're actually looking at sort of expanding beyond this crypto chasm, you could say, of maybe 30,000 to 100,000 active traders, and expanding beyond that. So one of the things we're looking at is like FOMO for inspiration and how they've crossed the chasm here and gotten out of the crypto bubble. And I think that's going to be the real next chapter of how we approach hiring going forward.

• 18:34Speaker 00

  Yeah, Justin, I do want to ask you about product, but let me tie off this section with Lucas real quick. Lucas, it sounds like you have exactly the team that you need to produce the product that you want, but that's also one thing. The other thing is organization and leadership and operations, which is, that's the ball, ball's in your court. What history do you have as an entrepreneur? What's your background? What's your lore?

• 18:56Speaker 01

  Yeah, well, I have some deep lore, which I think we can get into if you want to go on the personal side, but let's just say, I actually come from a research background. I was a physics researcher and then robotics researcher for better part of a decade before I got into quant finance. There's some fun stories about how and why I made the pivot for another time and maybe some beers. But suffice to say, once we started out in quant, as I was saying, I've run now funds and teams of various sizes. We raised a few rounds in the GP of that first fund in New York that I was mentioning. That's where I really started my career in finance, working the entire time with Edward, my co-founder, so we go back more than a decade now. That was acquired by Digital Currency Group, as I was alluding to earlier, ran a very large team at Genesis. So when we joined, it was probably 50 to 100 people at Genesis and DCG.

• 19:39Speaker 01

  By the time we left, it was 250-plus, and built out a massive engineering work there as well at the quant research team. As it relates to variational, we stayed lean, and I think this is one of our driving factors. One thing that was left unsaid, David, but to give you a direct answer, we're just under 25 people right now, and expanding, I like to say, fast by our standards, but slow by, you know, traditional startup standards. Like, we hire very senior and, you know, very strong backgrounds. And I think that's part of our ethos that's shared from the prop trading background, like with HyperLiquid, we want a really high-performing, tight and lean team. So you know, I manage orgs at various sizes. We've raised many, many, many rounds of capital and run books frankly even much larger than variational is in our career, myself and Ed.

• 20:22Speaker 01

  But we're very comfortable kind of scaling out this team in that direction.

• 20:25Speaker 00

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• 23:14Speaker 00

  Justin, talk to me about product in crypto in 2026. If there's one thing that crypto goes fast, sometimes it feels like it goes slower, but then you zoom out and it goes quite fast. I think one of the sectors of crypto that has gone the fastest inside of this already fast industry is product, product development, product design around trading venues. That has gone like lightning fast. So talk to me about just some of the philosophy or sentiments that you have around this sector of crypto, product around trading venues and how you take that work to variational.

• 23:46Speaker 02

  Yeah, absolutely. So this year has been really interesting for variational because I would say we've really been doing our best just to catch up with the rest of the market. Our growth at the start of this year and through the last two quarters has been exceptional and honestly a little bit unexpected, but. And so as a result of that, we've really been trying to catch up and get feature parity with the other perpetual exchanges. I do think now we're starting to get to a point where we're almost there, but through the rest of the year, we're really trying to round out the core features. So over the next few months, we're actually still in private beta right now. We'll be going public mainnet very shortly. We'll be launching our trading API after that. Right now, actually it's all manual users click trading in our app directly, whereas

• 24:28Speaker 02

  most exchanges, most of their volume actually comes through their trading API. So we expect a big boon in users and also targeting a different user base that way. And then in addition, we have other things like we're trying to incorporate privy and fun. We want to make it easier to onboard people that don't know how to use a private key, people that aren't familiar with stable coins, people that don't want to manage a wallet. We think that's probably where this space is headed. We've seen a lot of pickup with FOMO. I know you've done a lot of coverage with what's been happening there. And I think like FOMO really, there's a lot we can take inspiration from. Their onboarding process is incredible. And if we could replicate that in a mobile app for our users, I think we could really expand out of this crypto cohort and start targeting, you know, people that have never

• 25:13Speaker 02

  traded perps before, people that have never used crypto before, et cetera. So that'll be a big focus over the next few months for us.

• 25:19Speaker 01

  When we talk about feature parity and like a lot of the work Justin's doing, we have, to your question earlier, like amazing technical fundamentals and a completely different business model we're building on, right? We talked about swaps and we talked about the broker-like model and all the benefits of that. This is like the core of the protocol and we think we've done that exceptionally well. So we are building product from a position of strength, but we're quite upfront with ourselves about like, why are the reasons people are using variational? They're using it for TradFi liquidity on-chain. They're using it for the innovation we've had with the broker-like model with swaps and beyond. But we want to wrap that in as great of a UX as possible. I think there's very few people who are using variational as a, just the most exceptional user experience in terms of place to trade. So a lot of Justin's job and what he's mentioning there is marrying like an exceptional quality of UX and real differentiation of new ideas, like porting some ideas from FOMO and others

• 26:04Speaker 01

  to variational and taking this model that we think from a bare bones, let's call it tech perspective, is far and away better than traditional brokerages, right? Because they're derivatives, because they're accessing to global markets and with the same liquidity as TradFi. Like that's the base we're building on and with privy and fun and beyond, Justin's alluding to, we're building this model not just to compete with Hyperliquid and Lighter and others. And again, we see them in many ways as collaborators, but we're competing longer term with Puan Indonesia, with Grow in India, with interactive brokers, longer term, let's say with Robinhood in the US. Like that's the market and that's why the UX has to be, the UX has to be exceptional and allow for onboarding net users from out of crypto into our platform.

• 26:42Speaker 00

  What are the big like user, consumer archetypes that you guys are really going after? I can name a few just to get the conversation rolling, but I don't know if I'm correct or not. There's, you know, the average crypto trader, crypto consumer who's got like a $10,000 portfolio on variational. They have plenty of wealth elsewhere, but they have a $10,000 account on variational. Maybe that's one. There are maybe the mega whales who are, have a huge portfolio and they're putting, and they do a ton of volume. There's maybe a few other people. What are the archetypes that you guys are really going for to move the needle here? The most proximate archetypes that you guys are going for?

• 27:17Speaker 01

  I like to always talk about business models in terms of crawling and walking and running. And it's funny that variational is so huge now in our crawling stage, right? But we were crawling, when we call it like taking those first few users that are DeFi native, right? And to Justin's point, to sign up for variational right now, you need an invite code, you need a crypto wallet, you need Arbitrum USDC, right? And we're talking to a crypto audience here, a Bankless audience and beyond, of course.

• 27:41Speaker 00

  Yeah, everyone who just heard that was like, oh, I know all of those things.

• 27:44Speaker 01

  Exactly. Exactly. And that's why that's that core set of early adopter users, that first 30,000, 100,000. But how many daily trading users does Hyperliquid or even Lighter and others and us have versus Robinhood, versus interactive brokers, versus Puan Indonesia or FUTU in Hong Kong, right? It's actually infinitesimally small if you compare those DAU numbers. So the real answer to your question is, yes, you know, there's some whales, there's crypto traders and so on, coming from DeFi platforms, coming from centralized exchanges. But we're building a product that is so fantastic on kind of what we're offering, swaps and TradFi great execution and derivatives on global markets in one platform, that we're building this to be competitive with traditional retail brokers, right? And there's a wide kind of chasm to cross there as we go into our, call that walking mode.

• 28:29Speaker 01

  And then the running mode is being at full scale, as I said, versus say an IB and a Robinhood. But what I think we've gotten right is the technical underpinnings, is the partnerships, is the TradFi liquidity on-chain. And the tailwind of this whole ecosystem is it is better to trade on-chain, it is better to trade with one-click signup, with instant settlement on USDC, with one USDC balance collateralizing your entire portfolio. Like that's fantastic. But where we're still working on is a lot of the UX pieces. So our early users are very much the cohorts you just described there. Traders that might be in Asia, might be in various parts of Europe, might be some in South America and other growing areas for us. They're certainly familiar with crypto platforms, whether they're on-chain or coming from a centralized exchange. You know, there's some who are small accounts or some who are big accounts.

• 29:10Speaker 01

  I think both see massive benefits in our access to global markets and the quality of execution we have. Of course, you know, bigger accounts and bigger guys feel this in the spreads and the order sizes more acutely. But fundamentally, like our goal is always to broaden that set. And I think of course, on-chain trading as an entire industry is growing rapidly. Crypto exchanges and so on are growing rapidly. But I really want to eventually be pulling users and, and I shouldn't even say eventually, very near-term, pulling users in from traditional brokerage platforms as well. And that's where we see the next exponential phase of our growth.

• 29:43Speaker 02

  Yeah, one thing I'll add there is there is a narrative that we firmly believe in that perps are just better, outright better than options for many reasons, but one of the core pieces is that they're just easier to understand than options. And while I think that's true, I don't think that's yet been applied to the fullest level. If you look at Robinhood's options product in their app, it is very simple, very easy to understand. But when you compare to that to existing perps offerings and that includes ours as well, it's really an advanced platform, I would say. You have to. Manage your liquidation price, you have to know about isolated versus cross margin, you have to know about funding rates, et cetera. I think there's a lot of work that we can do to actually deliver on the promise that perps really are better and easier to understand to options.

• 30:24Speaker 02

  Right now, it really is a product that caters to, I would say, a very knowledgeable audience base. This crypto cohort of 100,000 or so, 200,000 or so daily perps users.

• 30:35Speaker 00

  I want to learn about how variational actually uses the chain. My intuition tells me that you guys are pretty on-chain lights, as in you don't have a huge footprint. There's not a lot of state there. What are the actual blockchain components that go into variational, the product?

• 30:51Speaker 01

  Yeah, so we're currently built on Arbitrum. But the answer to your question is, we're strong believers that for safety, for the isolation of funds, and even for the observability of the protocol, everything that moves value around has to take place on-chain, right? So settlement and clearing and liquidations, movement of realized and unrealized P and L and collateral, like that's all happening on-chain, that's all happening on Arbitrum one. We do a huge amount of transactions to support that, right? It's not a vast majority is off-chain and we move things around. Occasionally, we're one of the largest gas spenders in Arbitrum one. I'd say we're probably in the top five just DeFi protocols overall in terms of usage of the chain directly. So if that gives you a mental model, we're heavy users of on-chain. But by nature of OLP's operations, right?

• 31:33Speaker 01

  For example, as I think you're aware, we talked about directly facing TradFi liquidity and hedging, right? We talked about even our ability to hedge on centralized exchanges, which in many cases will have interesting liquidity. We do want to help aggregate for our users when they're trading, say, crypto perps on-chain. Like, these necessarily have to happen off-chain. So we see variational as like a foot in, the foot that's really important. And the kind of design principle is capital and segregation and smart contracts, all this stuff that touches value exists on-chain. But a lot of our hedging systems and pricing systems and some of the OLP pieces, they have a foot in both, right? And that's a feature, not a bug of the platform. It's what lets us face TradFi liquidity and aggregate from off-exchange sources. So that's the mental model of how we think about it.

• 32:15Speaker 00

  If I went and checked the chain, I would only see USDC going in and out of variational, right? Like not, if I was buying Ether or Uniswap token or Arbitrum token on variational, I'd do that in like a derivative fashion, not an actual spot market. And so like, it's just USDC and USDC-based exchange logic that's being manipulated. So that's really the bulk of the activity that happens on Arbitrum.

• 32:40Speaker 01

  That's absolutely correct. In the future, of course, we're looking at adding multiple different collateral types, just like you can imagine for any derivatives platform. But we started with USDC and again, this design principle of using Arbitrum, using USDC and beyond, because they're great, high-quality products and we want our traders to be protected. We went through as a prop trading firm, FTX, Collaps and beyond. We've seen the hairy things that can happen when you don't have great risk segmentation. I want to point out with this opportunity, one thing about our protocol design, which is that on our platform, David, if you open an account and sign up with a wallet and Justin and I have our own accounts, all of our capital balances are completely segregated. They're not moving into one hot wallet pool, they're not moving into one agglomerated kind of risk system.

• 33:21Speaker 01

  This is a benefit of this broker-like model is that capital stays on-chain observable. There's plenty of tools that track it on Arbitrum. And it's USDC there, right, which we consider one of the best and safest, you know, stable coins, holding the peg to the dollar. So that is a really strong set of guarantees. When we talk about the off-chain pieces, OLP and kind of the systems that collateralize and figure out that smart routing for hedges and so on, that's using OLP's own capital base, that's using some of our own capital that we've raised. This does not expose the users directly to that risk. And we think that's a really important thing to emphasize in also terms of how we segregate risk and give a great guarantee to those users that the pieces that touch their capital are happening on-chain in an observable way.

• 34:00Speaker 00

  You've brought up OLP. Can we go into what OLP is and how it functions inside of variational?

• 34:05Speaker 01

  Yep, the simple answer is, OLP is the Omni liquidity provider. This is the system that, as we were describing earlier in our broker-like model, takes the other side of the trade from the user. The user is always the taker, accepting a quote, OLP is always the maker, offering that liquidity. And then it goes and aggregates liquidity from all of our hedging sources intelligently to offer the best price and the best execution. OLP doesn't necessarily just do pass-through hedging, right? That would be relatively inefficient. Let's say, David, you place an order for 100 BTC long. We can give you a price on that and fill it quite efficiently, right? Just in one click. But that doesn't necessarily mean that we're passing through 100 BTC market order onto the order books of, say, a Binance. But we're aggregating liquidity, much like an intelligent market maker would, right?

• 34:48Speaker 01

  So we like to joke to a crypto audience, we call it like an in-house Wintrader, an in-house Oros or an in-house Selene. And then to a, for example, TradFi audience, we'd say we're doing the same job as these big liquidity aggregators, dealers and banks internally. We do this intelligently, right? Our goal is, at any given time, just to aggregate liquidity and provide the best execution, the best price that we can to our users. But OLP is a real linchpin of that. That's why we highlight so much of our quant trading backgrounds. This is how we aggregate, it's the intermediary that's doing that work.

• 35:17Speaker 00

  What are the yields that have been on OLP in the last, like, can you give me a sample size of the typical yields?

• 35:23Speaker 01

  Yeah, so I'll frame the question slightly differently. OLP is one of the main sources of revenue for variational. We have three sources of revenue going forward. We have this flow trading, right? The intermediation of the flow is how OLP monetizes. We have the ability to generate essentially net interest income on balances, right? And that can take two forms, one on the open interest and then one on the USDC on the platform. But suffice to say, that's the lion's share of our revenue that we're monetizing in a little bit of a similar way to how big trading firms monetize in general, right? We're providing the surface of liquidity, we're able to capture some of that spread. Fundamentally, right, we disclose this in our bi-weekly updates amongst many other dashboards that track public stats about variational.

• 36:06Speaker 01

  This is very, very profitable for the system. And that's a great thing for the health of the protocol and the sustainability of the business models that we're not offering zero-fu trading while generating trivial revenue. We're capturing the part of the revenue that normally would be captured by those huge market makers. We all know how great of a business Jane Street and HRT and Citadel and so on are. And your mental model, I want you to think about, we're at least taking a bit of that for the protocol level and keeping it verticalized. One of our earliest ways we described the platform was like Robin Hood and Citadel built on top of each other, right? So instead of leaking that value out of the ecosystem, we keep it within. And that becomes indeed, yes, a return on capital for OLP's liquidity providers.

• 36:47Speaker 01

  But more broadly, this is the topline revenue that's also being used towards the token and towards the ecosystem as a whole. So I think that's an important piece to understand is that by not giving that out externally, like other platforms do, we're able to really generate some interesting economics at the protocol level.

• 37:03Speaker 00

  All of these interesting economics converts into the conversation around the token, which I want to get to. There's a question I missed back in the Arbitrum section that I first want to rewind and go to before we get to the token section. You talked about all of the just like block space around Arbitrum that you consume, because a lot of the business logic goes on-chain. Is it similar, when you guys are doing all of that activity, is it similar to the lighter construct? In that lighter is an audible ZK circuit that you can poke at the verifiability of the state of the exchange? Is that kind of the same properties that variational is using Arbitrum for? Or like, what is the, all of that block space of Arbitrum getting burned for?

• 37:42Speaker 01

  Yeah, not directly, right? Again, because we're not an order book, we don't have the same types of circuits and complexity on-chain that lighter does. And I think they've done an excellent job with that design and certainly even with verifiability and the speed of those ZK circuits have been fascinating to watch that. And as I said earlier, like whether it's versus lighter versus hyper liquid and others, we see our business model existing alongside these exchanges. It's great that they're coming up. I think as these continue to grow and maybe even take flow away from traditional exchanges and TradFi, like we'll continue to aggregate both of them. But my thesis is that, you know, in the near to midterm, and frankly, even in the long-term, longer conversation, you know, trillions and trillions of dollars of liquidity will remain on TradFi rails, right? So we want to be the bridge between the two.

• 38:24Speaker 01

  But to answer your question directly, the pieces that's primarily consuming so much gas and so much activity on Arbitrum is constantly rebalancing. We talked about those settlement pools are completely isolated for our users. So as, David, your trade goes well and you generate some funding rates, some additional unrealized P and L, maybe some additional positive realized P and L, we're constantly moving that capital around from OLP, from other pools into your pool to balance out and have those exist on-chain for your account. Let's say Justin's trade is going poorly, sorry, Justin. You know, as he, as he has big net outflows in his funding. Yeah, exactly. As he has big net outflows in his funding payments maybe, and as he realizes negative P and L, those are being moved out of his settlement pool, of course, into the OLP system.

• 39:08Speaker 00

  So it's the execution of the exchange logic to move sometimes very small, sometimes very large amounts of USDC instantaneously as the state changes?

• 39:17Speaker 01

  Correct. Between all of these different, you know, systems as the state changes. And that's how we say, you know, your capital stays within that pool, including your realized P and L, your funding, almost immediately, right? And even a portion of your unrealized P and L. So we think this is a very interesting guarantee in the architecture and the safety of the system. But in order to accomplish that, yeah, we have to be moving huge amounts of funds around at all given times in terms of the number of transactions. And that's a good problem to have, but that's simply because we have so many of these pools, so many of these users now.

• 39:44Speaker 00

  Right before we, this week on Wednesday, I believe, you guys announced the VAR token, V A R token, your guys is T G E. You guys, a quote says, "We plan to finish our points program at the end of Q3 and launch ticker VAR shortly thereafter." So first half or second half of October, would you guys say?

• 40:05Speaker 02

  Yeah, let me just clarify that, or maybe we can step back. So we had planned to end points at the end of Q3 and launch the token imminently after. But because of reasons that'll be very clear over the next couple of months, we're extending the points program through Q4. And as part of this announcement, we wanted to give back to our community. We've seen the success that Hyperliquid and Lighter have by doing the same. Hyperliquid, I believe, airdropped about 31%, Lighter about 25%. We wanted to make sure that our users were getting the biggest airdrop as a percentage, I think, in crypto history. So we're targeting a 32% airdrop of the total supply proportional to points holders. And so that'll happen at some point in Q4.

• 40:47Speaker 00

  In Q4, and you guys are extending the points program to go into Q4? Probably because I think you guys are getting a ton of attention right now. And so there's probably a lot of net new people. So you guys are trying to also distribute points to those people as well? Is that sort of the philosophy of extending the program?

• 41:00Speaker 02

  Yeah, I think that's it, that's right. The growth over the last couple of months has been wild, honestly, a little unexpected. We expect that to continue through Q4. And yeah, to your point, like as we start onboarding more users, making it easier to use the app, maybe launching mobile, launching Privy and funds, you don't have to manage a private key and stable coins. We can now start targeting non-crypto natives. And to be able to airdrop to them, I think is going to be something that is really unique if we could pull that off. Yeah, we definitely want to grow our user base, continue rewarding our existing users.

• 41:31Speaker 01

  Yeah, David, I'll cut in with one thing, just to double down on two things. One is that, you know, Hyperliquid showed if you do right by your community, your community will do right by you. So I think doing one of the largest airdrops in crypto history and kind of setting that precedent really puts us in the same ballpark. And we want to follow that mental model of doing right by our community. I'll release more information and certainly there's going to be more comments from the teams in the coming week. As Justin said, it will become abundantly clear that there were some very core motivations to buying a little bit more time here. But we certainly wanted to, let's just say, have the space to land some amazing partnerships, some amazing features and a few other things and get this

• 42:12Speaker 01

  TGE really correct. But it's still very much coming in the near term. And points we've extended essentially just to cover that intervening period between now and TGE. But it's been fantastic to see the optimism of the community. We know that the community knows that we keep them kind of in the highest regard and as our number one priority. And I think that the sizing of the airdrop and how we're approaching that also shows that.

• 42:34Speaker 00

  Is there any color you can give me about just the health of the startup you guys have raised in the past? I'm sure you have cash in the bank still. Like the runway that you have, the burn. I know these are not like typical questions, but since the company is transitioning from being like a typical startup to being a tokenized, a token company with 100% revenue, what sort of color can you give about just like the runway that you guys have?

• 43:01Speaker 01

  We have very significant capital as been announced previously. There'll be better information coming on that like coming few weeks as well as as it relates to things for pre-TGE preparations. We've been immensely profitable, both as a company operating OLP and variational in the past year, year and a half, as well as our history as a prop trading firm. So we are very, very well capitalized. I like to joke, A, we're profitable, but B, just in the general startup sense, it became immaterial to measure our runway in terms of years and decades at this point. And that gives you an indication. It is the first of those question, to your point, David, of any good investor. This is a very well

• 43:46Speaker 01

  capitalized team. It's a very well capitalized product. For example, we've been the major depositor of OLP for quite some time. And as we know, that has generated substantial revenue. So we are not at all worried about the health and economic health of the team and the lab system and the overall protocol, which is again, why we can take such a position that says our intention is to move as much of the value we're generating here into the wider ecosystem, such as a token.

• 44:11Speaker 00

  Cool, guys. So beyond the token and TGE event coming in Q4-ish, what does 2027 have in store for variational? What are your guys' aspirations by the end of next year?

• 44:24Speaker 01

  Yeah, so we have big aspirations. I'll give you a few and then Justin can maybe give you a few. But right, like this is a space that's used to exponentials or we should be used to exponentials, right? How long did it take Trade XYZ to go from very early deployer on HIP3 to one of the main drivers of hyperliquids growth? And certainly in the billions and even on certain days, tens of billions in terms of volume and turnover and open interest and so on. I mean, a very short amount of time, right? About a year. We've seen immense adoption of our swaps product that we talked about earlier. We think that this is a better way to trade for retail trading, RWA derivatives on chain. And just in general, even variational, as you've seen, has had immense growth in the

• 45:05Speaker 01

  last year, year and a half. So we very much expect that to not just continue, but to accelerate, especially as we list not just six, but dozens and then hundreds of different swaps products as we continue to improve all the product pieces that Justin mentioned. My favorite one, which we haven't had that much time to talk about today, and it probably will have to bookmark for future Bankless Podcast, but it's variational pro, right? So I mentioned from our background, we come from institutional trading, OTC trading. There's still a world out there and all those stockbroker movies, right? Not of perps and so on, but of options and structured products and block trades and credit default swaps and all these other fun things. There's a quadrillion dollars of volume in all these OTC derivatives that is still being handled by ops teams offshore, moving swift wires

• 45:49Speaker 01

  around and so on. It's a mess. So in 2027, our intention is to launch Pro, which is variational's answer to the institutional product side, options, structured products, other types of multi-dealer platform trading essentially. This is something I'm particularly interested by. But in the meantime, we'll continue growing variational and Omni to be the size of some of our large competitors and beyond, because I think this whole space is growing. I think we're going to be bringing net new users on from traditional brokerages, as Justin was saying. And we'll grow very much alongside, but also in a comparison to, as I said, some of our competitors. It's a better product. This is the best place to trade, RWAs, and that will be our main focus. So Justin, if I missed anything.

• 46:29Speaker 02

  Yeah, just distill it down to really three things I think we're mostly thinking about now. The first is improving on the swaps product. We're currently just in the early stages of rolling that out. It's already a very popular product for us and we think that will continue. So we're actually looking at how we can merge swaps and perps, for an asset like US 100, let's say, or Google stock. We may have a swap and a perp listed, but there's possible ways that we can merge those two products as a benefit for users and turn swaps fully 24/7 and give the benefits of swaps to perps. Mobile, obviously, as I mentioned before, is a huge focus, seeing how we can onboard normal people, not just your average crypto users. And then as Lucas gave a little bit more info about this pro,

• 47:13Speaker 02

  specifically, I think we're mostly excited about options, which are really heating up in our sector, the crypto sector. So we've seen derive, I think you've covered on the show, David, as well, has done really well. And I think there's a lot we can do with options of bringing that TradFi level of liquidity that we see in the options market on chain, which has never been done before yet. And I think our model, which is the broker-like model of aggregating from these different liquidity sources, is actually really interesting, especially for options. So those are the main things we're focused on right now.

• 47:44Speaker 00

  Guys, this has been fascinating. I love learning about cool new protocols. Do you guys consider it a protocol? Is the protocol the word, the correct word for variational?

• 47:53Speaker 01

  It is for the infrastructure. We call it the variational protocol. But I think, to be honest, David, the marketing side of me and certainly of Justin and Max on our growth team just calls it variational nowadays, right? Because one key observation, as Justin was saying, as we move towards onboarding that next few hundred thousand users from TradFi is, this is just a trading platform, right? And I say just, right, but crypto is an infrastructure rail. It's a fantastic one. Onchain, I think, is going to continue to grow. Stable coins are excellent. But I envision a world where people coming over from IB and Futu and Pooal and any other brokers that we can name don't necessarily know what Arbitrum ESDC is and don't necessarily even know what onchain is. But it's just fantastic infrastructure behind a great user experience. So it's somewhere between

• 48:38Speaker 01

  the two. Variational protocol is the tech, but variational is the trading platform, both for retail and in the future for pro and options and beyond. And that's going to be fantastic.

• 48:46Speaker 00

  Amazing, guys. Well, this is, I am excited. You guys have gotten me excited. So I hope the best for you guys and you guys' upcoming TGE. And also, I do hope that the market continues to be the way that it is, because I think that's tailwinds behind everyone. So thanks for coming on today and teaching me and the Bankless Nation about variational.

• 49:01Speaker 01

  Awesome. Thanks so much, David, for having us. Cheers.

• 49:04Speaker 00

  Bankless Nation, y'all know the deal. Crypto is risky, but not risky enough. The institutions have landed, so we are going even further west. This is the frontier. It's not for everyone, but we are glad you are with us on the Bankless journey. Thanks a lot.