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

Episode Date: September 30, 2026

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

Bankless 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. Thanks so much for having us. Yeah, thank you. Variational has certainly been Christian doing on the timeline in terms of just excitement and hype, especially with a recent announcement of your guys' incoming Airdrop, the TGEE 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 can and need to just start with this. basics. The way that I start explaining variational to people is like you start talking about the perk platforms, lighter, hyperliquid. 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? 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 HyperLakeWlighter, 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 RWA space on two key fronts. Number one is that we're not rebuilding the quiporting. liquidity on chain and then order books, we hedge directly onto Tradfai Rails.

So our liquidity for our RDA listings is proximal to, or we like to call it as equal to, on tradfi on chain. And that's a really fantastic thing. The second biggest difference is this with this brokerage model. I want to 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. This is 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. 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 RDAs, as I was saying, from off-chain sources, from traditional finance itself. And that becomes our hedging likes, 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? How many market makers they can incentivize to rebuild that liquidity. And that's important, especially for RDAs, where you have trillions of trillions of dollars

of daily volume and liquidity depth in traditional. markets, but the on-chain order books are still quite thin. For us, it's not a problem, right? We're aggregating and routing directly to Tradfai, which means that in RWA's, 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 lists, not just six swaps, but hundreds, right? And really bring that Tradify liquidity on chain for a wide variety of instruments since we can now aggregate directly. 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 coin bases, you're competing with hyperliquids, and the way that you're doing that is you're just offering better execution because you're aggregating liquidity elsewhere. Exactly correct

with one or two things I want to clarify around the edges. Number one, we see ourselves competing longer term actually against Robin Hood, interactive brokers and these other broker-like platforms. Exchangers are still a key piece of financial infrastructure, right? For example, I like to say we don't compete directly with hyperliquid. In many cases, we've historically traded an hedge there. We're not a price discovery venue. The key piece that we left out when we're 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 each other really, really fast figuring out what the fair value of something has.

But just like Robin Hood or interactive brokers and others, those are liquidity aggregators, right? When you're trading on Robin Hood, your order is getting routed to other dealers and eventually to other exchanges downstream. Ours works quite the same way, but again, we're able to offer the benefits of liquidity aggregation, the benefits of trad-fri-liquidity on-chain, zero-free 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. 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? 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 Nizzi 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 Robin Hood and so on. And I see it quite similarly, right?

So again, exchangeos 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 because that's the 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 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. That's really where we have as you're at one moment happening right here with RWA perps and swaps on variational. We're doing something that no other platform in the space can

by bringing that liquidity directly on chain. I cut you off to really drill down into going into the brokerage model. Was the second thing exactly what you just said about porting into Tradfai liquidity? 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 liquidity on chain and these on chain order bucks? There's great teams and frankly, again, very big fan of the hyperliquid team and others who have really paved the way there. But for us, I think there's two, three, five, you know, even beyond trillion dollars of daily liquidity in many of these markets in the U.S. and Korea, Japan, and 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. 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 in kind of the swaps land. And we can also list hundreds that hedge exclusively onto traditional finance rails,

because swaps is how the biggest terms in the world trade. So this is a really fascinating thing. we're doing on the brokerage side as well, is introducing a completely new type of instrument, a new way to trade, which is essentially what we think as better perp. Can you break down to swap? Because when you say the word swap, I'm like, yeah, like, you're a swap. 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? 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 perk, right, a linear derivative on an underlying, you can write a swap on anything. And you might have 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. 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 and 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 trades. So when we're

hedging against that trad-file 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 trad-fai 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, we kind of more closely stated, is to really give these tools, 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. Yeah, and I'll add it's not the SWAT 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 market like US 100, for example, compared to the perp that would be listed on places like trade XYZ, maybe finance, buy bit, 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 size is totally reasonable with sub one basis point spread. And then for funding sub 5% basically capped. I want to cut in before we get too deep into technical mumbo-jumbo, because I know great audience we have with bank lists. Many guys are really sophisticated.

Many guys are following from the higher level perspective. We're probably pushing the limit. Exactly. And I was going to say fundamentally, why does spread matter? Why does these buzzwords like liquidity and bringing trad file 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 trading. platform is, the more you're crossing that huge cost when you enter an exit of 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 brokers in a Schwab and a Robin Hood, where as a retail trader, I don't even think, I don't even care about the order book and T-wopping 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? Even for small trades, as Justin was saying, you know, five to ten times more liquid and I think we'll see an even bigger difference as we list more things. Some of the ways I've heard a variational described is as a portal to tradfied 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 into brokerage except what you guys are doing is you guys are a quote portal to tradify liquidity. That's kind of one of your guys's competitive edges. We're in this world of tokenized real world assets, tokenized stocks, things are coming on chain. The industry has

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 Coin Gecko and you can type in Invidia and you'll get like seven different offers and not any one of them is dominant. Like the winner of the liquidity of like tokenized real world assets. It's 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. Yeah, absolutely. I totally share your sentiment. tokenize 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 with Tradfai 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 variation as a bridge from Trotify 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? 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 in the DTCC and others for RWA issuance and these rap 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 long and short, and he want the ease of use of one account. That's absolutely what we're going for. We're bringing Tradfai liquidity to swaps, two 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 a 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 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 Robin Hood at others where they made it so simple, right?

So easy to use. Like that's our vision. 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, 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 stratify 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? Yeah, let me give you a few thoughts, and I'll let Justin fill in some more blanks.

We are the best at pretty much the three pillars that you mentioned with one key advantage that I'll get back to. Number one is Edward and I are co-founders of Variational. We come from about 10 years in the crypto space, start out in the quant head. fund area, FX and moved to crypto, ran that in New York for some time, spent a lot of time pitching Trotify allocators, very like traditional type of business model. That was acquired by one of the largest broker dealers in the space. Then 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.

When the Variational has a very similar founding story to Hyperliquid actually, where we were a prop trading firm active on all different eras of D5 protocols, whether it was like DYDXV3-4 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, we're 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 tradfai 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, kind of building out more of a product team and U.S. team, we also try to expand the org and being experts in building 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 Tradify connectivity. Look, you know, doing these partnerships with Trad V 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 and 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, what's been facing these

bigger dealers and banks and so on, OTC on their antiquated, you know, fixed standards and all the infrastructure 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 and crypto, we've integrated with as many DFI 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 Tradfai background, right? So the relationships, the connectivity, the knowledge, like that's how we're actually pulling off being the bridge between Tradfine on chain.

Justin, I'll let you add anything that I missed there. Yeah, no, I would just say we've also really looked to our user base in our community for talent. So I actually was an early user 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, etc. 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 cryptocosm, 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. Yeah, Justin, I do want to ask you about a 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?

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 the robotics researcher for a 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 start out in Kwan, 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 Michigan. 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 willing to earlier, ran a very large team at Genesis. So when we joined, it was probably 50 to 100 people. Genesis and DCG, 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 studied Lean,

and I think this is one of our driving factors. One thing at Will it's left unsaid, David, but to give you a direct answer, just under 25 people right now and expanding, I like to say fast by our standards, but slow by 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 managed orgs at various sizes. We've raised many, many, many, many amounts of capital and run books, frankly, even much larger

than variational is in our career, myself and Ed. But we're very comfortable kind of scale. out this team in that direction. I've been trading crypto for almost a decade. And I've used so many different wallets, exchanges, aggregators, or front ends. And I'm basically always looking for the same thing. Just one interface with a deep liquidity across a bunch of chains and assets where I can access markets like perps, earn yield, trade confidentially, and still control all of my funds.

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episode waiting for you now. Justin, talk to me about product and crypto in 2026. If there's one 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, a product around trading venues and how you take that work to variational. Yeah, absolutely. So this year has been. 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. 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 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 traded perps before, or people that have never used crypto before, et cetera. So that'll be a big focus over the next few months for us. When we talk about feature parity and 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 strengths, but we're quite upfront with ourselves about like, why are the reasons people are using variation? They're using it for tradfile liquidity on chain.

they're using it for the innovation we've had with the broker-like model with swaps and beyond. 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 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 hoarding some ideas from FOMO and others to Variational. And taking this model that we think from a bare bones, let's call a tech perspective,

is far and a way better than traditional brokerages, right? because they're derivatives, because they're accessing to global markets and with the same liquidity as stratify. Like that's the base we're building on. And with privy and fun and beyond Justin's aligning 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 Pua in Indonesia, with grow in India, with interactive

brokers, longer term, let's say, with Robin Hood in the U.S. Like, that's the market. And that's why the U.X has to be exceptional and allow for onboarding net users from out of crypto into our platform. What are the big 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 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 have a huge portfolio and they're putting and they do a ton a 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? 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're crawling when we call it, like taking those first few users that are defy 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 Arbitum USC. Right. And we're talking to a crypto audio. here, bankless audience and beyond, of course. Yeah, everyone who just heard that was like, oh, I know all of those things. 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 in others and us have versus Robin Hood versus Interactive brokers versus Poulon, Indonesia, or Fultu in Hong Kong? It's actually infinitesimally small if you compare those DAU numbers. So the real answer answer to a question is, yes, you know, there's some whales, there's crypto traders and so on, coming from

D85 platforms coming from centralized exchanges. But we're building a product that is so fantastic on kind of what we're offering swaps and Tradfai grade 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. And then the running mode is being at full scale, as I said, versus say an IB in a Robin Hood. But what I think we've gotten right is the technical underpinnings, is the partnerships, is the Tradfai 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 sign up with instant settlement on USDA, 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. They're 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. I think both see massive benefits and 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, you know, 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 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. 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 Robin Hood'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. 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. PARPS users. I want to learn about how variational actually uses the chain. My intuition tells me that

you guys are pretty on-chain light, 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 of the product? 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&L and collateral. Like, that's all happening on chain. That's all happening on Arbitrum 1. We do a huge amount of transactions to support that, right? It's not a, you know, the vast majority is off chain and we move things around. Occasionally, we're one of the

largest gas spenders in Arbitrum 1. I'd say we're probably in the top 5, 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, for example, as I think you're aware, we talked about directly facing trad-fi 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-purps 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 the stuff that touches value exist 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 light lets us face, try andify liquidity and aggregate from off-exchange sources. So that's the mental model of how we think about it. 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 Arbitram token on Variational, I do that in like a derivative fashion.

not an actual spot market. And so it's just USC and USDA-based exchange logic that's being manipulated. So that's really the bulk of the activity that happens on Arbitram. 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 USC and again, this design principle of using Arbitram, 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, FTC, collapse, 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. This is a benefit of this broker-like model. That capital stays on chain, observable. There's plenty of tools that track it on Arbitrum, and it's USC 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. You've brought up OLP. Can we go into what OLP is and how it functions inside a variational? 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, of finance. But we're aggregating liquidity much like an intelligent market maker would, right? So we like to joke to a crypto audience, we call it like an in-house or an in-house oros or an in-house Selini. And then to a, you know, for example, Chad-Fi 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. What are the yields that have been on OLP in the last, can you give me a sample size of the typical yields?

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 the 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 service of liquidity, we're able to capture some of that spread. Fundamentally, right, we disclose this in our biweekly updates amongst many other dashboards that track public stats about operational. 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 few trading while generating, you know, 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, you know, 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.

So instead of leaking that value out of the ecosystem, we keep it within. And that becomes, indeed, yes, a return on capital for OLPs, liquidity providers. But more broadly, this is the top line 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. 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 Arbitron 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, like, lighter is an audible ZK circuit that you can, you know, poke at the verifiability of the state of the exchange.

Is that kind of the same properties that variational is using arbitram for? Or like, what is the, all of that block space of arbitram getting burned for? Yeah, not directly, right? Again, because we're not an order book, we don't have the same types of, you know, circuits and complexity on chain that, that lighter does. And I think they've done an excellent job with that design and certainly even with verifiability

and the speed of their ZK circuits have been fascinating to watch that. And as I said earlier, whether it's versus lighter versus hyperliquid 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 Tradfai, 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 Tradfiber rails, right? So we want to be the bridge between the two. 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&L, maybe some additional positive realize PNL, 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's going poorly. Sorry, Justin. 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&L, those are being moved out of his settlement pool, of course,

into the OOP system. So it's the execution of the exchange logic to move sometimes very small, sometimes very large amounts of USC instantaneously as the state changes. Correct. Between all these different systems as the state changes, and that's how we say,

your capital stays within that pool, including your realized P&L, your funding almost immediately, right, and even a portion of your unrealized P&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. Right before we, this week on Wednesday, I believe, have you guys announced the VAR token, VAR token. Your guys is TGE.

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? 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 launched the token imminently after. But because of reasons that'll be very clear over the next couple 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, air dropped about 31%, lighter about 25%. We wanted to make sure that our users were getting the biggest air drop as a percentage, I think in crypto history. So we're targeting a 32% air drop of the total supply proportional to points holders. And so that'll happen at some point in Q4.

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? 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, so 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 air-drop 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. 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, you know, 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 you know we want to follow that mental model of doing right by our community um you know

i'll release more information and certainly there's going to be more comms from the teams in the coming week as just 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 um let's just say have the space to land some amazing partnerships some amazing features and a few other things and get this tg really correct, but it's still very much coming in the near term. And, you know, points we've extended essentially just to, you know, cover that interdailing period between now and TG. 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

air drop and how we're approaching that also shows that. 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, you know, 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? We have very significant capital has been announced previously.

There'll be better information coming on that coming few weeks as well 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, you know,

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. That gives you an indication It is the first question, to your point, David, of any good investor. This is a very well-capitalized team. It's a very well-capitalized product. For example, we've been the major depositor at OLP for quite some time,

and as we know, that has generated substantial revenues. 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 the token. 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 as aspirations by the end of next year? 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, you know, very early to player on HIP3 to one of the main

drivers of hyperliquids growth. And certainly, you know, in the, you know, 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 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 a future bankless podcast, but it's a very national pro, right? So I mentioned from our background. We come from institutional trading, OTC trading. There's still a world out there in 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 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. I'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 RWA's, and that will be our main focus. So, Justin, if I missed anything. Yeah, I 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. You know, 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. 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 bring that Trodfai 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. Guys, this has been fascinating. I love learning about cool new protocols.

Do you guys consider it a protocol? Is it the protocol the word, the correct word for variational? 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 is Justin was saying as we move towards onboarding that next few hundred thousand users from Tradfai is. This is just a trading platform. Right. And I say just, right. But crypto is an infrastructure rail. It's a fantastic one. On chain, I think is going to continue to grow. Stable coins are excellent. But I envision a world where, you know, people coming over from IB and. Fuku and Pulao and any other brokers that we can name, don't necessarily know what Arbitrum USDC is and don't necessarily even know what on-chain is,

but it's just fantastic infrastructure behind a great user experience. So it's somewhere between the two. Variational protocols, 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. 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 is upcoming TGE. And also, I do hope that the market continues to be the way that it is because I think that the tailwinds behind everyone. So thanks for coming on today and teaching me in the Bankless Nation about Variational. Awesome. Thanks so much, David. Thank you for having us.

Cheers. 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 who are with us

on the bankless journey. Thanks a lot.