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

David Hoffman (0:02)

Bankless Nation, I'm here with Lucas Schuermann and Justin Bram. Lucas is the co-founder and CEO of Variational. Justin, head of product at Variational. Lucas, Justin, welcome to the show.

Lucas Schuermann (0:12)

Thanks so much for having us.

Justin Bram (0:13)

Yeah, thank you.

David Hoffman (0:14)

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 can't and need to start with some basics. The way that I start explaining Variational to people is like, you start talking about the PERP 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?

Lucas Schuermann (0:54)

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 Hyperliquid, like Lighter, like a lot of other great teams. But the last 25% there 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 liquidity on chain and then order books, we hedge directly on to TradFi rails. So our liquidity for our RWA 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 brokerage model.

David Hoffman (1:44)

I want to actually double down on the brokerage, because I think it's a really important point that I want to say more than just once. Let's just double click on it. 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.

Lucas Schuermann (2:03)

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 them 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 RWA as I was saying, from off-chain sources, from traditional finance itself, and that becomes our hedging legs. So in other words, we aggregate and import this liquidity into our own trading system and show that to the user. So most platforms are constrained by the depths of their books, how many market makers they can incentivize to rebuild that liquidity. And that's important, especially for RWA 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.

For us, it's not a problem. We're aggregating and routing directly to TradFi, which means that in RWA, we're able to show order of 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.

David Hoffman (3:23)

So with an order book, a traditional exchange, you have people trading against people any to any, right? And with Variational, it's any one 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 hyper liquids. And the way that you're doing that is you're just offering better execution because you're aggregating liquidity elsewhere.