viva la var ep6 w/lvs: co-founder and ceo of @variational_io

We kept looking for it. No one was ever building it, so we decided we're going to build it ourselves. Variational Omni went live on Arbitram in January 2025 with zero fees and a large universe of tradable markets. Fast forward to the present day, following a $50 million series day led by Dragonfly, we see milestone after milestone with over a hundred tradfly markets listed 90 days, 289 billion in lifetime volume and over 500 million in tradfly OI. Variational Omni is now ranked at top three on-changer routers platform by Open Interest with only hyperliquid and asset above it, but remember it is not a perp desk perp decks, it is a universal broker and this concept central to what makes it a genuine innovation. With all this being said, the job is very much not finished with so much more on the horizon. Today we're going to talk about Swaps, Variational Pro and the upcoming TGU amongst other things. I'm very excited to talk to Luke today, so let's make us start. First of all, Luke, how are you? I'm doing great, now excited for the conversation. Thanks for having me. I'm wrapping up a very busy week and I think next week we'll continue to be very busy for our team as well, but it's been an exciting time and I'm very happy that we get to share a little bit more about Swaps. We started using it a day or two ago and I'm very soon going to welcome everyone to trade it on platform. Amazing, we're going to get it to Swaps shortly. So my first question is something a little bit different and it will maybe inform those who are not so familiar with the variational thesis. So to kick things off, I want you to imagine that myself and the listeners are potential investors that you're going to push to us. What would you say to convince us that variational was worthy investment? Reflect on its moat, the team and how it succeeds long term. Now I'll caveat this, by saying that anything you say does not constitute investment advice. This is just an exercise to help people understand why they should care about what you're building. Go ahead. Yeah, I think it's an interesting question. I like to joke to the team that the job of a CEO is is mostly sales. I feel like I spend most of my time pitching whether I'm pitching, you know, to our users, whether I'm pitching our vision, whether I'm pitching indeed to investors is that when we raised capital before or even to new members joining the team, right, we have to sell the vision. So if anything, it's a softwafer's question because I feel like this is the one I get the most practice actually answering. But let's start. I'd actually like to also do this in a little bit of a different way. I'll decompose kind of vision in the case for variational and two, three pieces. One is the short term, one is the medium term, and the final is the long term. In the short term, I think the growth speaks for itself, particularly with RWA's. You know, I think there's two or three main massive driving forces in the crypto markets right now. One is perp seating everything, two is RWA markets as a whole coming on chain, whether a spot or derivatives. Three is on chain trading, picking up. And I think variational omni is well positioned for all three of these, but in particularly a highly differentiated way as most of our listeners know, but I'll kind of summarize for those who are relatively new to variational. In the space of many platforms competing with the same model, this exchange like infrastructure, which has great spot in the ecosystem for sure, variational sits completely differentiated to everyone else using a broker-like model, RFQ matching and so on. And really what this enables us to do is capture all three of those uptrends of a build on them. Number one, building on top of perps, we're introducing an entirely new instrument into the market swaps. This is, we think, the best way for retail to trade. It takes the benefits of perps like leverage and the ability to long and short with one USTC balanced. And it adds on to that essentially a static carry cost as opposed to variable funding rate. It adds a massive universe of possible listings, and it adds direct to tradfile liquidity. As it relates to the RWA kind of growth narrative, we've already been taking substantial market share. And I think that's mostly because of our liquidity aggregation model, we're able to pull liquidity directly from tradfile or not to strain to rebuilding liquidity on chain with order books because of our very different trading model. So this is one of the things we're most excited about because I think we're still at the very early stages of retail trading and RWA is coming on chain and just RWA is a whole coming on chain. And the third is the push towards on-chain trading and I think this is perhaps a little bit less discussed in the context of variational because we don't yet have our API. But this is still very much a big part of the thesis. You know, we're believers that over time, both in the near term and medium to long term, more and more trading is going to come on chain and variational as well position to capture that flow, whether it's agentic and AI-based tools that are used to trade, whether it's just global markets coming on chain and people in global jurisdictions being able to trade everything from one account or whether it's just the UX benefits being able to deposit USDC and Go and instant settlement 24 hours a day of availability, etc. These are really things that the things that people are most familiar with in the near term. But I want to set out just a really brief case on the medium term and the long term. On the medium term side, I like to say often, especially, let's say, chats within the ecosystem that variational doesn't stop at competing within DeFi. You know, we think there's a lot of great projects building in DeFi. Many of them will continue to succeed alongside us. I always like to say a hyper-liquid, for example, we're a partner to them in many ways, not a competitor. But the real competition that we are considering facing isn't in DeFi, it's in traditional markets. Variational is built to bring retail brokerage in general on chain. This is a unique vertical that we're competing in. We're not building a change. Again, we don't have an order book, but we're competing with the broker like model of an interactive broker's, a Robinhood, many other comparable businesses internationally. And we really see these as kind of our long-term competitors. So the medium term pitch is we're not just building a competitor within the DeFi space. We're bringing hundreds of trillions of dollars worth of activity that I would argue of retail trading on chain globally. That's the vision. In the long-term, and I think we can talk about this, I'll segment it off for a future part of the combo, long-term's pro. And that's bringing institutional trading on chain. I like to constantly liken this to bringing institutional settlement on chain with stable coin remittances and FX flows and so on. This was just a dream in 2016-17. But nowadays, we see, especially circle and USTC integrating into some of the biggest institutions in the world, we saw a recent announcement of USTC being accepted in Samsung Pay and all sorts of other things happening. So this will continue, of course. But I'm asking the question, that's for payments, that's for FX, that's for stable coins. Who's bringing institutional trading on chain? That's a hundred trillion dollar market. And that's what we're really aiming for long-term. So I think near-term, highly differentiated product swaps RWA's midterm competing with brokerages and building a product that has comparable execution to Robinhood and Interactive Brokers because of our aggregation model. And long-term, don't just bring retail trading on chain, bring all institutions on chain. Oh, that was actually, thank you. You gave a really, pretty great overview of the vision at the thesis for what you're building. There's so much I want to dig into there, but I've created a schedule and I want to stick to it as closely as possible because the community provided me with so many great questions and I want to sort of honor that with sort of giving them the content that they want. The one thing I will just pick out is this sort of long-term vision of competing with the likes of brokerages and bringing institutional trading on chain. And I've heard you talk about that in previous interviews and I hope you mentioned that you think that sort of, for much further down the line, this broker-like model will really capture a lot of the market chef for trading on chain and that does something that I find incredibly interesting. Okay, so we're going to move on to Swaps because I think that's near 10, one of the most interesting innovations that you guys are bringing to the market. And I know that you're extremely excited about it. I've watched all of the content related to this and I've seen you very animated about Swaps and how you think they're a real game changer. I think based on what you just said, many people have a basic understanding of what Swaps are but how do listeners understand just how big of an unlock Swaps are overall. Perhaps there are some real world examples you can allude to here. I know that Ed talked about, you know, there was this recent like declaration event on SK high nicks. Yeah, give us an overview of Swaps and why they're a big deal. Yeah, I mean, let me put it in two ways. Firstly, Purps are eating the world and Purps have eaten the world. I'd say it's the dominant thesis of crypto, especially crypto trading and on-chain trading over the last you know, a couple of years maybe beyond. And I think Purps were an amazing innovation but Purps have limitations. I think it's something that's not talked about too much. At least some existing venues Purps have number one, incredibly wildly unpredictable funding rates. If you're trading a sizable position on something that might more trade more thinly on 24 by seven market, for example, those can get up into the hundreds of percent, maybe even thousands of percent random and beyond. And this is just a difficult to retail territory to deal with. It's not something we think about in traditional brokerages or in spot trading and so on, but the benefits of leverage and ability to long and short are fantastic. So Swaps are a reaction over their replacement for Purps. We'll continue to list both on platform. I get that question a lot and you know, I think there's a use case for both for more sophisticated traders but for retail traders, Swaps I expect to be a strictly better instrument. So I think about them solving the problems for Purps and kind of building on top of it. So number one, we'll talk about predictable funding costs. Right. So instead of that funding rate that's derived from Mark versus an index price and can whip around, there's predictable funding costs. Most of these have around 4.5% or so percent to be on the long side, to be on the short side, there's a little bit of a spread as well, but they're very, very manageable. Some of the cheapest margin can get anywhere and very predictable. So we think that's a big systemic innovation versus Purps. Number two is that, and I'll talk a little bit about what a swap is as well in a second, because I think it's important, definitionally. Number two is that this instrument is aligned with Tradify. Tradify, the biggest hedge funds, the biggest institutions in the world, when they're trading underlinings like St. NVIDIA or Apple, they're not actually buying spot shares. They trade swaps, usually what's called a total return swap. So there's a massive infrastructure in the existing traditional markets for swaps. And this is how Omni and OLP connect to Tradify. We trade these swap-like instruments. So aligning the instrument that retail trades on our platform with the hedging leg allows us to hedge it directly and exclusively into Tradify liquidity sources. So this is of course incredibly exciting when it comes to things I saw Ed just do a little bit of a teaser on Twitter, which went pretty viral. But we're talking about fractions and fractions of a basis point in terms of spread to trade millions of dollars in the largest markets. This is something that is anywhere from 5 to 10x cheaper than hyper-liquid on say a US 100, which is one of their most liquid markets. And we think that's only going to continue to improve over time. But imagine this quality of liquidity. When I say Tradify level, liquidity, I mean it, the same quality of liquidity you'd expect on an interactive broker's or Robinhood when you're trading spot. Imagine this liquidity but accessible in one account as a swap with leverage, which is very different from traditional brokerages. I billied along a short but hundreds of things on one account. I mean that's really what it's all about. And as a final addendum here, when we're talking about variational omnie, as always everything here is with zero fees. So we think this is quite a beautiful model. I think it's the best way to trade versus perps. I think it's the best way to trade versus traditional brokerages where you have to be trading spot. And I think in general, the quality of execution we're bringing on chain and the number of assets that we're kind of listing with the Swaps push is going to essentially be unrivaled, whether by other crypto platforms or by other brokerage platforms. And that's what we're really excited about. Okay, brilliant. Thank you. Yeah, Ed recently wrote about Swaps. We hope to usher in a new class of on-chain users, long-term holders of real productive assets. And you mentioned recently on a pod that the Swaps could be potentially bigger than perps. How big can they be? And what is it precisely that makes you so bullish on them as an instrument? Well, so let's think about what people are generally trading perps and where. Decentrize, on centrize, crypto exchanges. We talked about the benefits of perps. They build it along in short. The ability to use leverage. The ability to trade global markets just from when you go to CC bounce. All of these things are true about Swaps. But Swaps strictly improves upon perps. Swaps improves having a predictable funding rate, which is very, very different. It allows you to hold long-term because that's about the cheapest cost of leverage or carry that most retail investors would ever be able to access in that 4% to 5% range. Swaps allows you to trade confidently in really large size. Things that are just not possible on chain right now, outside of maybe five or 10 instruments on one platform. We can't trade yet in the same way that I could trade on say interactive brokers and trade hundreds if not thousands of different instruments, global markets confidently. So we really think this is kind of a new era. And number three in terms of market sizing, again, I mentioned where these things trade. Just look at open interest, right? We're talking about hundreds of billions of dollars evenly. Maybe if we're looking at the global perps market, it would reach into the high hundreds of billions, maybe a trillion. Don't have a figure in front of me. But when we talk about market sizing in its current state, it would be in that ballpark is what we're aiming for. But I think the bigger ballpark is thinking about how many investors who currently aren't on chain at all. Again, we're competing with traditional brokerages. So imagine those who are trading on an interactive brokers or Robinhood like platform where pull out in Indonesia or a full tour others in Hong Kong, right? Imagine that user base and how large their positions are. And the benefits that we can bring of on-chain trading and instant settlement and leverage and swaps global liquidity, etc. That's the real vision here. So even in the near term, that's why I say there's a massive market. I don't think I have to convince anyone that competing in the same size as the perps trading market is huge. But we look beyond that. We look to what's the sizing of retail trading and retail brokerage globally. And that's really what I'd like us to aim for. Okay, fascinating. Okay, so just dig into a little bit more like the nuts and bolts of what a swap is and how it works. We've referenced the variational infrastructure. How do swaps actually work? What actually happens when someone hits long or short on a swap behind the scenes? So let me provide...