X Space with Variational: Introducing Swaps

come to stage at the word out a little bit and we will begin things in a minute. Looks like we might have lost Lucas as speaker. Yeah, he said he had some weird audio so he's going to try and rejoin just some just some classic twitch space stuff. Yeah, there's always one in the mix that this happens to. Well, I guess we can get things started then since we're mostly here. Between two going out, we've got a variation account here. Yeah. Good morning, B5. Or good evening. It's definitely going to be across the globe for me. I'm Jorm tonight. We'll be your sleepy moderator this morning. Just working on my first coffee. So bear with me. I'll be leaning on the expertise of our new new analyst Kyle. He joined us a couple weeks ago and we're here with the very original team. We've got Kyle. We've got Cass. We've got Max and we've got Lucas here in the works. So we'll get a hello from everyone. Hello, I guess I'll start it off. My name is Max and I lead growth on the variational team excited to be here. Hey guys, Cass. I work with Max on the growth and marketing side of the team variational. Also excited to be here. Hey guys, I'm Kyle. I'm from DeFi Lama Research. I'm an analyst. Nice to meet you guys. I think we got Lucas back here. Yeah, yeah, I might have missed the QN. But I'm Luke from the Founder and CEO of variational. And I'm excited to be talking about Swaps and Beyond today. All right, yeah, great having you guys here. Thanks for joining and thank you all there for joining us as well. Yeah, right before we get into what's good, yeah, we'll talk about variational. Who's looking at DeFi Lama. They're one of the largest Perp Dexes here listed. They've seen crazy trading activity with pump in the markets. They've increased the 28 billion trade in the last month. They grew from six markets to 97 today and just a few short months. Raised a couple million, 62 million over the past couple months. Yeah, all this can be tracked on DeFi Lama. I can make your Perp Dex research a little bit easier like I did when I put the space together. So yeah, check it out there. Filter it, see who's good. And yeah, we'll get into it. So what's been up variational? What are you guys up to? Max, you want to kick us off or I can? Yes, sure, I'll take this one. I mean, I think the main thing that we're excited to highlight is Swaps, which are a new instrument that we've been working on building for the past month or so. I mean, at least developing for the last month or so. I think a lot of the partnerships required to make it happen and then it works for quite a while. But yeah, we're really excited about Swaps. So there are new instruments that we're building to kind of bring track file liquidity on chain in full. There's obviously been a huge rush, which I'm sure we'll talk about of RWA Perps and trading equities and commodities and more traditional markets on chain. But I think there's anyone who's tried to trade those markets, especially when you get down to the single stocks or try to trade in size or hold a position for a long time. It leaves a lot to be desired. Funding rates can still wick around and get really crazy spreads are very wide compared to the underlying markets. So we wanted to see what we could do to improve that. And that's where Swaps come in, where we use some of our partnerships directly to try to find liquidity partners to flatten funding rates as much as we can, keep them predictable and relatively stable. And then also actually offer like track file level depth where you can trade million, five million, ten million plus in size and still get really solid execution. So yeah, that's what we've been working on and what I'm most excited about. But I'm sure Lucas has a bunch of other things to add as well. Yeah, I mean, I couldn't have said it better myself on the Swaps side. I'll just chime in with a couple things. We're in the middle of what we've called variational summer, which is where we kicked it off by introducing our series a raise and kind of our positioning to be one of the largest in the market. We have ambitions to particularly as Max was highlighting dominate RWA's where we launched our first RWA perp starting with just a handful of markets in A. Since then, we've listed as I believe you highlight more than a hundred different RWA perp markets and Swaps are rolling out today and heading into this week. So we're very excited about that. So these are two attempts to really build the premier trading video on chain for RWA's. But beyond that, these days variational, as you highlighted, is one of the largest perp trading platforms more generally on chain. So we have about 1.5 billion in open interest. We do between one to two billion on an average day in terms of volume on the platform. That's with no API. So these are UI click traders getting in there and making their positions. That's our target market. And beyond that, we have a lot of goodies coming up later this year. But for now, we're very focused on the getting the word out there about why Swaps are better than perps. All right, great to hear. And I guess in your own words, why are Swaps better than perps? Can you tell us a little bit about what's going on there? Yeah, I'll lead off just a little bit. First, I want to define, I think most of the people in the audience here would be familiar with what is a perp, you know, why are they important? But just to start off with a tiny bit of history, perps were originally developed for leverage trading with synthetic leverage. This was kind of back in the BitMex days. And the idea is you use a synthetic instrument trying to track an underlying index price. So originally, let's say the price of BTC would be the underlying index. And then you have a free floating mark, which is just kind of the last traded price of the perp. And the way that we try to keep those in line is using a mechanism called a funding rate. Not perps have been amazingly powerful in crypto and beyond. And you know, we've said for the last few years perps are eating the world. And I think there was a lot of truth in that. But there is a kind of a buried downside of perps. And I think we've seen that as we've moved into RWA markets where great teams like Hyperliquid and others introduced 24x7 trading in RWA's using perps as the main instrument. But we saw illiquidity over the weekend. We saw kind of a lack of alignment with where the traditional finance liquidity is and kind of rebuilding these order books on chain. And most importantly, we saw a highly variable funding rate. That for an average retail trader is a little bit to get their heads around. The beauty of perps is supposed to be the simplicity, right? Tracking the underlying linear instrument, not having to worry about options or Greeks or anything like this. But the reality is a little bit more complicated. You know, you can end up with hundreds or thousands of percent per year financing rates in these funding legs. And that's a bit hard to predict for an average trader. Institutions love feasting on this. They call it the basis trade. But we think for an average user, retail wants a very predictable flat funding rate. That's fair, just based on the borrow cost of US dollars. We also think users expect a menu not just of dozens of things that are tradable currently on chain, but of hundreds and shortly thousands of different RWA's that have liquidity that looks more like the underlying markets, the traditional markets, which is what people are interested in trading these days, and less like just little puddles of liquidity that we've rebuilt on chain. So this is why we're reintroducing a new instrument. It actually comes from TragFi. Swaps have been used for many, many, many years by the largest hedge funds and sophisticated traders of the world. And we said, hey, why should these large funds be the only ones that get to benefit from swaps? Swaps as a derivative with a fixed funding rate, more effectively fixed. Swaps as a derivative that have trillions of dollars of liquidity underlying the traditional markets. And broadly, are just as easy to trade and straightforward to long and short and use leverage as a perp. So this is in short kind of how we think about it. Swaps fix the problems with perps. They allow direct access to TragFi liquidity for hedging. They allow us to list thousands of different instruments for RWA's at scale. And they allow us to have effectively fixed or flat funding rates, which I think is a really major innovation for an average trader. Very cool stuff. Thanks for that, Lucas. Yeah. And are you the plan as you're announcing this today? Yeah. So we've actually been working, as Max mentioned, on swaps for quite some time now. Our work started really when we first launched Omni, which is a very strong perps trading platform. We use this really unique broker-like design, right? We're not in the exchange. We don't have an order book. And our goal was always to build what looks more like a hook in a broker, a liquidity aggregator. And this has some great benefits for crypto trading. Right? So this allowed us to list hundreds of different crypto pairs and allow us to aggregate liquidity and have more liquidity than some of our parts. And importantly, it also allowed us to approach it with zero fees while still generating great protocol revenue. But as we move forward, we realized there was amazing application of this to real audacity trading as well. And most specifically, we realized if we could establish relationships with traditional finance dealers and partners, some of the largest, you know, trad-fi firms in New York, Chicago, and Amsterdam, that we would be able to bring the liquidity on chain and use this kind of aggregation model to be that link. So we started work on this, again, when we first designed the protocol and some of the design decisions we made, we started work on those partnerships as early as Q4 of last year, adding into Q1 and Q2, building out a lot of connectivity and infrastructure. And it took us a little bit longer than we would have liked. As a startup, we always like to move as lightening fast as we can. But yes, we're actually announcing Swaps, ideally later today, US time, which we're very excited about. And this kind of culminates in a very long process. We've had Swaps live in May, not for a little bit of time, with a whitelisted set. We found them in the test net very recently. I wish I knew it generated some buzz amongst some faces that I see here on this space on Twitter. And we're very excited to finally open it up for wider usage and get the feedback on, again, letting people experience for themselves how much more powerful Swaps are than perks. Awesome, yeah. And for a little context for D5 out there, D5 Lama Research and Variational have been working together for a time now. And we've pretty much been watching the rise of the Variational Summer. It's been a pleasure working with you guys. It's been fun for myself to dive into what Swaps will be, you know, doing my own cursory research here. But admittedly, I'm no trader. I don't have too much experience actually trading in perfect scene. That might be where my other speaker, Kyle, might have something to say about that. Well, we'll get into the state of D5 and Perth Shatter here and, you know, what's been going on in the world, you know, I would've seen, like I said, the rise in price and volume and all the good data that makes my job easier for posting. So just curious, you know, Kyle, that experience has been for both you guys, Variational As Builders and for researchers like Kyle, you know, watching this monumental rise in Perth Exactivity recently. I'll open the floor for you guys up. Please, Chatter with. Well, for Chattering on the state of D5, Max Kyle, where do you guys want to start? There's almost too much to cover. So I feel like we'll need a couple interesting started questions. Well, I was thinking actually to start from where you mentioned earlier on trade XYZ and what you said about like how they basically, you know, open the world to RWA Perps. And then you guys are building swaps as a consequence of this because of like the whole perps stuff. And I mean, to start, I like to know your view on like actually a trade XYZ and the particular ecosystem on Hyperliquid and how you view that actually. Yeah, well, a few thoughts in no particular order. Maybe I'll start with, as you mentioned, RWA Perps and the swaps. I'd actually say we started building swaps or towards this wider vision and architecture. Long before there was much popularity and on-chain articles. We actually saw more activity back kind of mid to late last year on the spot side. If you remember X stocks and some of the other experiments that we're launching and starting to get a little bit of traction, even on-dote before that on the spot to a nice start of the A side. So it's interesting to see how the narrative has evolved. Hyperliquid was certainly the first to do on-chain derivatives trading on RWA in a big way. And I think they very much, you know, blazed the trail here. But I wouldn't really draw direct comparison between what we're launching with Perps and some of the existing infrastructure used by XYZ. I think again, we I've always liked to say it for many months if not years now. We're big fans of Hyperliquid. We've historically traded on Hyperliquid both as a prop shop, which is our kind of DNA similar to the Hyperliquid team from years ago, as well as even four variational liquidity aggregation system. But what we're introducing with Swaps is very orthogonal product. But we can get back more into that in a little bit in terms of our existing RWA perps versus trade x-way. You're maybe just more broadly XYZ as a whole. Look, I think XYZ solved a perkylian task. And that task was in some sense solving the downside of Perps. The downside of Perps is they're very different in new instrument versus anything that exists and tradify. In tradify you have spot, maybe trading, let's say US stock on NASDAQ or NASI. You have data futures on a smaller subset of instruments. Maybe we could talk about commodities or more broadly the space even if US single stock futures on venues like CME, NIMX and others. Then you have...