Original Title: This Hidden Cost Is Quietly Draining Your Account - Variational CEO | E186

Original Source: When Shift Happens

Editor's Note: Variational is an on-chain derivatives trading protocol that doesn't use an order book. Instead, it aggregates liquidity from centralized exchanges, decentralized exchanges, and even traditional financial markets, then quotes it to users. On September 24, Variational announced its tokenomics: the $VAR TGE is set for Q4 this year, the genesis airdrop accounts for 32% of total supply, and community allocation totals approximately 50%. At a time when RWA on-chain has become consensus but everyone is rebuilding liquidity, this "don't rebuild, just relocate" architecture offers an alternative approach.

On September 11, 2026, Variational founder Lucas Schuermann appeared on the When Shift Happens podcast. He discussed why retail traders shouldn't have to pay fees in the long run, why the liquidity that traditional markets accumulated over forty years cannot possibly be rebuilt from scratch, how swaps use predictable holding costs to replace perps' wildly fluctuating funding rates, and the fundamental architectural divergence between Variational and Hyperliquid. The following is the original podcast content:

After Wall Street Liquidity Goes On-Chain, Who Gets Eliminated?

In the long run, I have two main targets to "take out."

The first category is the overcharging exchanges and brokerages in the crypto industry. They harvest users through closed markets and channels. You could call this a "David versus Goliath" situation. We're still expanding, and we're not that big yet, but this model has already proven itself. Partnerships are already in place, and more products will roll out over the rest of this summer. As long as we keep proving this model works, proving that Variational's new technology is reliable, I believe users will eventually get fed up with paying high fees on other platforms, and those platforms will gradually be phased out by the market. The traditional U.S. market is a cautionary tale: after Robinhood launched zero commissions, other high-fee brokerages were either forced to cut commissions to zero or simply eliminated.

The second category is a subset of market makers — I won't name names here. I don't want value flowing outside the ecosystem. We occasionally work with external market makers, but they don't directly touch our users. We just use them as hedging channels, like placing orders on an exchange to hedge. Most market makers are legitimate businesses — they make markets orderly, efficient, and liquid. But some just want to make quick money off retail order flow. I'd rather operate transparently through our own platform and keep the value inside the ecosystem.

If Hyperliquid Is the AWS of Liquidity, What Is Variational?

Let me use a finance analogy to make this easier to understand. Variational is the Interactive Brokers or Robinhood of on-chain trading, and it offers innovations that neither of those two have, such as derivatives like swaps, which are not available on those platforms.

In one sentence: Variational aims to bring the advantages of the brokerage model and liquidity aggregation to on-chain trading and new types of derivatives.

Let's compare it from an infrastructure perspective as well, because the difference between a broker and an exchange is crucial. Hyperliquid is an exchange, in the same category as CME, CBOE, and Nasdaq, belonging to the infrastructure layer, equivalent to AWS. Variational is more like Apple: we want to capture the user entry point and build the most user-friendly product. We build on top of the infrastructure layer; it is thanks to them that we have our applications and ecosystem, and what we need to do is integrate these resources to give users the best experience.

If Zero Fees Are Possible, Is Charging Fees Just Exploiting Users?

I don't really want to use the phrase "exploiting users," after all, many excellent platforms charge fees. But one thing is clear: in highly mature markets like traditional finance, for example when you trade on good platforms like Robinhood, fees have long since dropped to zero. The reason this is possible is that zero fees were feasible all along, both the brokerage model and liquidity aggregation can achieve it. The crypto industry just hasn't completed this innovation yet.

In my view, in the long run, most retail traders simply don't need to pay fees. So at the very least, we are leading the way in building a fair, transparent, and as retail-friendly a market as possible.

Can zero fees really make that much of a difference? Yes, but it depends on what kind of trader you are. I like to explain Variational from a product positioning perspective. What we launch are perps and swaps, both derivatives, mainly aimed at traders, not necessarily suitable for long-term investors. Traders tend to get in and out quickly, often hold positions overnight, carry large open interest, and actively bid when they are bullish on a direction. In these cases, fees keep piling up. The more frequently you trade, the higher your turnover, and the larger your account, the more fees eat into your returns.

So again, I won't say fees are exploiting users, but if you can avoid paying them, why pay? This money adds up, and the numbers might shock you. Fees in the crypto industry are generally charged as a percentage of transaction volume, not one or two dollars per trade. When transaction volume is large, we've seen some large accounts pay tens of thousands of dollars in fees. That's no small amount, and every single transaction drags down your returns.

Why should traders care about Variational's zero fees?

Because Variational doesn't charge a single cent in trading fees, and that money is more than most people think. Let me put it as simply as possible, simple enough for that Uber driver to understand: he was being charged 3% to 4% in fees on Coinbase and had no idea.

Let's first look at the big picture of how the retail trading business makes money. Zoom out a bit, and there are typically three types of players making money in the trading chain: exchanges, market makers, and brokerages. All three take a cut.

Take Robinhood for example. You place an order on Robinhood, and Robinhood routes it to a market maker like Citadel Securities. Market makers make money on the spread, which is the small difference between the execution price and the fair market price at the time. After deducting hedging costs, what's left is their profit. The market maker pays Robinhood a "payment for order flow" (PFOF), which sounds professional but basically means a referral fee kicked back to Robinhood.

Further down are exchanges and other infrastructure, mainly where market makers and high-frequency trading firms trade with each other and hedge. Every order matched in the order book, the exchange takes a cut. That's the three types of players in the trading chain.

Some brokerages (I won't name names) charge way too much. Some market makers, especially in certain less regulated corners of crypto, are known for predatory spreads and front running. On the exchange side, major U.S. regulated exchanges like NYSE, Nasdaq, and CME charge very low fees per contract; but some exchanges charge outrageously high fees. So there's a lot of room for optimization here.

I want everyone to understand Variational this way: it merges the latter two roles into one, thereby improving efficiency. On the brokerage side, we do liquidity aggregation, but we don't route orders to external market makers whose primary goal is making money. Think about how big this business is: Citadel Securities alone, from what I know, generates tens of billions of dollars in revenue a year. We keep this portion inside the platform. Our profit model is the same as brokerages and market makers, but this value doesn't leak out — it stays in the ecosystem.

This way, we can not only achieve zero fees, because we make money like a market maker, but also distribute a portion of our revenue back to users: previously it was loss rebates, and in the future there will be "spread rebates." We can also offer users more favorable spreads, doing our utmost to optimize execution quality.

With only one market maker, how do users know if prices are fair?

Two points. First, the crypto industry is different from other industries—most things are open and transparent, and we're no exception. Our fund flows, revenue, and profit and loss can largely be verified on-chain. And as far as I know, at least 12 websites continuously track our execution quality.

Second, what we call "alignment with community interests." Betting against users, or giving users poor execution prices, benefits neither OLP nor the platform as a whole. This industry is fiercely competitive and information-transparent—users will find out immediately and turn to competitors. What truly benefits us is doing the opposite: continuously providing top-tier execution quality across as many assets as possible, and doing so transparently. That's how trust is built, and that's how the flywheel spins. We make money by growing the pie, not by squeezing individual users.

So I emphasize two things: first, building trust through transparency; second, aligning business interests with user interests. And as I just said, through various mechanisms already live and upcoming, we distribute a substantial portion of revenue to users. The entire system is tied to user interests—that's the core driving force.

Why should traders care about Variational's asset selection?

Because what you can trade matters as much as trading costs. I often say that the liquidity traditional markets have accumulated over 40 years cannot be rebuilt from scratch. How should we understand this?

Following the topic of fees, let me first explain what "market liquidity" is. This financial buzzword is often tossed around casually—sometimes as praise, sometimes as criticism—but what exactly does good liquidity versus poor liquidity mean? Ultimately, it's about whether you can complete a trade smoothly. I like to use houses and cars as examples—they are illiquid assets with no efficient market. For a house, it's hard to get an exact market price. Selling a house involves various taxes, agent commissions, and you may not be able to close at the theoretical price immediately—unless you're in San Francisco, where the housing market is hot. So the difference between good and poor liquidity ultimately shows up as wide bid-ask spreads or high fees. For ordinary users, these financial terms mean costs—and these costs often make people give up trading altogether, give up expressing their views.

Simply put: people roughly know what something is worth, but because of poor liquidity, you can't sell it at that price immediately. You might have to wait, you might have to discount it like selling a car or house, or you might have to pay a hefty fee to close the trade because there's no active market.

On the other end are extremely liquid markets. Take traditional finance as an example—US equities trade several trillion dollars a day. If I hold $10,000 worth of stock and sell through a traditional broker, it executes at that price within a second, with less than 1 cent of slippage. That's remarkable. Why does liquidity matter? Because when entering and exiting positions—say you want to bet on Nvidia—you don't want to wait, and you don't want to pay 0.5%, 1%, or more above fair value like selling a house. What you want is to open and close positions at fair prices anytime, anywhere.

So interestingly, we just talked about fees, but fees are only part of the transaction cost. The other part of the cost is insufficient liquidity, that is, spreads and the like.

This is exactly another major advantage of Variational's liquidity aggregation model, reflected in two aspects. When trading crypto assets, we aggregate liquidity from as many channels as possible, including centralized exchanges, decentralized exchanges, and other dealers. This improves execution quality and also makes zero fees and a rich variety of instruments possible. But more importantly, RWA. Our goal is to list hundreds or even thousands of RWA and traditional market instruments, and we will not build a liquidity pool from scratch every time we list one. Building our own pools ultimately means users bear huge costs, and many times normal trading is not even possible. We directly access liquidity from TradFi, using the world's best markets for trading these assets, and pass the saved costs on to users.

So everything revolves around two things: lowering costs and making assets truly tradable. Our goal is for trading these assets on Variational to be as efficient as trading in traditional markets. I think this is the true zero-to-one moment for onchain RWA trading.

Why didn't the crypto industry think of a model like Variational earlier?

There are mainly two reasons. First, there are good reasons everyone rebuilt order books onchain. Hyperliquid's success is there for all to see, and I am a big fan and an early user. Building exchange infrastructure has many benefits. In traditional finance, Nasdaq and CME are both very good businesses. Exchanges will not disappear, and the market will always need a place for price discovery and trading. Some of Hyperliquid's original innovations, especially in RWA, were to build 7×24 perp markets for these assets. Now demand has been validated, and the early cold start has been completed. Next, we need to think about how this market will evolve, and in my view, our model makes the most sense. Some signs have already appeared in the industry, with some competitors beginning to introduce RFQ trading beyond the order book, which helps less liquid assets. But RFQ is not our main structural advantage. Our structural advantage is the broker model I just mentioned. Of course, I expect some people will try to copy and imitate these ideas.

Second, and more critically, it is scale, and the partnerships needed to bring TradFi liquidity onchain. Variational was designed for this: using RFQ to match orders, and using the broker model to complete trading, settlement, and clearing. Over the years, we have been dealing with many large financial institutions, gradually giving them the confidence to participate. Today's results are the outcome of many years of effort. This itself is very complex, and securing these partnerships also took a long time, so it was only natural that we became the first to pull it off. We will not be the last, but I hope, and believe, that we will always be the largest.

What's wrong with the current crypto RWA perp model?

Let me start by saying I'm a big Hyperliquid fan, I really admire what they've built, and I also appreciate the teams behind many of our competitors — it's just that our architecture is different. I just talked about zero fees, and about listing a large number of instruments by aggregating liquidity. That's two of the three points (the third, swap, I'll get to later), and it's exactly where the existing model breaks down.

Think of it this way: if you only list one or two, or a dozen or so assets — like how every exchange has highly liquid BTC, ETH, SOL — then yes, you can build very deep liquidity in a small number of assets. But if you want to list hundreds or thousands of assets, under the traditional order book model, you have to court market makers, get them to cover US equities, Asian equities, and so on, and rebuild liquidity from scratch. You're competing against the trillions of dollars in TradFi, and you're literally starting from zero. That's an extremely daunting undertaking — the fact that Hyperliquid and XYZ can do so well on a handful of stocks is already impressive. But when we want to take the next step and expand tradable instruments from a dozen or twenty to several hundred, the problem reveals itself: rebuilding from scratch to compete with TradFi is far harder than simply bringing trillions of dollars of liquidity on-chain. The on-chain order book model requires you to rebuild liquidity, rather than port or aggregate it. That is our enormous structural advantage.

Why haven't the whales on Hyperliquid moved to Variational yet?

I think the biggest short-term reason is trust and scale. Our model is new, and most new technologies run into this: when a new model first launches, people naturally have concerns about incentives, trust, and so on, and we need to prove it works. We've already reached a certain scale now, and I'm proud of that: 450 crypto assets listed, open interest over $1 billion, daily trading volume over $1 billion. In RWA perps, our market share is also expanding rapidly.

It's normal to wait and see for a while — to see how this model operates, how people adapt to it, and why the platform deserves trust. A big part of my job is to explain our philosophy clearly, so people understand how this technology works. Some things sound too good to be true — like, how does a zero-fee protocol actually make money? But as people become more familiar with this model, and as it keeps getting validated, I believe we can offer a more attractive product to most users on competing platforms.

What happens once Wall Street liquidity truly comes on-chain?

A massive wave of Wall Street liquidity is moving on-chain. Once it's on-chain, the number of on-chain traders will experience a "Cambrian explosion."

As I said, insufficient liquidity and a limited selection of assets are costs — opportunity costs and capital costs borne by existing users and potential on-chain users. Those stuck trading in TradFi aren't there for the experience. Think about how smooth it is to trade on platforms like Variational or Hyperliquid, then compare that to how clunky Interactive Brokers is, or those old-school financial platforms in Indonesia, Singapore, and Japan. People go there not because it's good, but because they have no choice: the liquidity is there, and on-chain doesn't have the corresponding products yet. Some instruments simply don't exist on-chain; some exist but have such poor liquidity that they're not even worth listing; and others lack proper access or accounts for various reasons.

These are exactly the problems we're solving. I believe players from all over the world will flock in, and they won't just be coming from other DeFi platforms. That said, I remain bullish — and will always remain bullish — on Hyperliquid. But I think we'll capture flow from traditional brokerages and legacy platforms, because trading hundreds of markets on-chain with a single account and a single balance is just so much more convenient.

What does the name Variational mean?

The name comes from our math background — it's a bit nerdy, to be honest. It's taken from "variational inference," a concept in mathematics and statistics. A little joke: Ed and I are terrible at naming things — "Columbia Quant Team" is a prime example.

When we first left Genesis, we got on a call to figure out what to call this new project and what exactly we were going to do. We opened Wikipedia pages on our favorite math topics and scrolled through one by one: How about "laminar flow"? Sounds cool. Has anyone used it? How's the SEO? We kept scrolling until we hit variational — thought it sounded nice, the word wasn't taken yet, and we could make a great logo with some fun waves. Done deal. It's been the name ever since.

Explain the Variational protocol to your mom

Explaining it to my mom is a bit tough. I love her dearly, she's wonderful and keeps my life grounded, but she knows nothing about crypto or fintech. Let me explain it to someone outside of crypto first — and if you want, I'll explain it to my mom after.

For those outside the crypto circle, the Variational protocol is infrastructure—infrastructure for on-chain derivatives trading. What are derivatives? They are financial products, either traded with institutions or aimed at retail investors, offering leveraged and interesting products. "On-chain" means we use crypto technology and stablecoins to make the trading and settlement of these products safer and more efficient. As for how to explain it to my mom: the Variational protocol is just infrastructure for trading and finance.

What is a perp? Explaining it to those who don't know much about finance

Perp (perpetual contract) is a type of financial derivative. But the term "derivative" sounds a bit intimidating. Simply put, it's a financial product that lets you trade an underlying asset—be it crypto assets, stocks, commodities, indices, or something else—with leverage, and you can go long or short using the same amount of USD or margin.

Spot stocks are different; you have to actually buy them, hold them, and complete delivery, so shorting is troublesome, leveraging is troublesome, and global users face various restrictions when trying to buy. So perp is a major innovation in the crypto industry. It was first introduced by BitMEX, around the time we founded my first fund, Q Capital. BitMEX pioneered this product, allowing people to easily leverage, settle effortlessly, and helping new markets achieve cold start.

What's the problem with Perp?

The problem with Perp lies in the funding rate. The funding rate is its core innovation and possibly its biggest weakness, especially in RWA trading.

Without going into too much financial detail, Perp operates based on the funding rate. It's the funding rate that allows Perp to accumulate leverage and improve capital efficiency during the cold start phase, but it can also fluctuate wildly in unexpected ways, causing significant losses for inexperienced traders.

For example. Suppose I'm now trading Nvidia or Tesla perps on-chain. If the position is held for a very short time and doesn't cross a funding fee settlement period, then you won't feel the impact of the funding rate. But you can think of the funding rate as a floating interest rate. Sometimes it's very low, negligible, and the annualized rate isn't high. But like certain high-interest credit cards (though here it's not intentionally predatory, but caused by market mechanisms), during poor liquidity, on weekends, or when retail investors rush in one direction, the funding rate can skyrocket, becoming a huge cost.

I've seen this too many times on Twitter, and you've probably seen it too: someone opens a position on Friday, and by Monday they've paid tens of thousands of dollars in funding fees, equivalent to an annualized rate of thousands of percent. This is a major obstacle for retail investors to confidently use derivatives. And I've always felt that derivatives are a good way to participate in these assets—you can go long or short, use leverage, and they're good tools for many traders. But the unpredictability of funding rates, and institutions using them for basis trades to arbitrage, makes many retail investors wary and is not very friendly to them.

So, the original design intent and advantages of perps—like leverage, trading a large variety of assets with a single margin, and being able to go both long and short—are all very good. But funding rates fluctuating wildly is, in my view, a major flaw of perps.

Is the funding rate just the cost of using leverage?

Yes. There are many complex economic factors behind it, but you can think of it as the cost of leverage across the entire ecosystem. When a large number of people are simultaneously going long or short, and there aren't enough institutions stepping in to arbitrage away the basis, the funding rate spikes.

There are many reasons, but ultimately, it comes back to the liquidity issue you asked about earlier. From a mathematical definition standpoint, the funding rate is extremely sensitive to insufficient liquidity, and it tends to spike on weekends. So overall, this is a major limitation of trading perps; and if an RWA doesn't have enough on-chain liquidity, this situation becomes even more common.

What is a swap? Please explain it in plain language for a media person like me who wants everything simplified

Then let me explain it the same way I simplified perps earlier.

A perp is a derivative that operates through a clever contract design called the funding rate, ultimately allowing you to use stablecoins like USD or USDC as margin to go long, go short, and apply leverage. A swap does exactly the same thing. A swap is also a derivative, and it's linear—so as you said, you don't need to worry about those higher-order Greeks in options pricing. Its price movements are essentially in sync with the underlying, which is exactly the same as a perp.

The difference lies in the contract structure: it's a bilateral trade rather than being matched on an exchange, which is a capability unique to us. This way, you're facing a fixed, predictable cost—what TradFi calls the carry cost—which you can think of as a fixed, predictable funding fee. At the same time, this also aligns this type of product with how derivatives are traded in traditional finance.

This is actually a very important second point. We've been saying all along that the goal is to list hundreds of assets in one place and map TradFi liquidity on-chain. Once the product format is aligned, it's also easier for us to hedge directly in the underlying markets. In other words, we're not forcing a square peg into a round hole—we're aligning the trading instruments on our platform with the most efficient, most liquid instruments globally used to trade these underlyings, which is the same set used by major institutions and banks for OTC trading: swaps, total return swaps (TRS), and the like.

I bring this up because swaps are not new at all in finance—they're already very mature and familiar in TradFi, just relatively new on-chain and in the crypto industry. You can understand it just like you understand perps: a financial product that lets you trade an underlying, apply leverage, go long or short, and the returns you get are fully tied to the underlying's price movements.

Compared to perp platforms, what has swap changed?

Two things. First, funding fees are cheaper. Second, it's predictable.

I'm not trying to encourage everyone to change their trading strategies, but I completely understand why many investors and traders would choose to hold positions long-term. We estimate that swap's holding cost, i.e., the funding rate, will be between 4% and 5% per year. That's one of the cheapest forms of leverage available in any financial system.

Some might ask: what's the average funding rate for perps when the market isn't crazy? The problem is it varies far too much, which precisely illustrates how difficult it is for perps to substitute for one another and how complex they are — just like the quanto contracts on BitMEX you mentioned earlier, where contract specs vary wildly across platforms. The reality is that perp is a broad category of products, with funding rate ranges, multipliers, contract specs, and various definitions. Go look at major centralized exchanges — all these fancy formulas are buried in footnotes. Honestly, it's hard to give an average. For major coins, i.e., BTC and ETH, it's roughly 7% to 10% annualized, but there are far too many exceptions. Exchange A differs from Exchange B, and BTC, ETH, and SOL all differ from one another. As for RWA perps, they've existed for too short a time, and weekend rates can be absurdly extreme — I don't even know how to calculate a so-called "average." That itself is the problem. We'd love to say "it's generally 6%, 7%, 8%," but that's not the case. Especially saying that to ordinary traders would be unfair — that shouldn't be their expectation for perps. Perp funding rates are floating, influenced by many factors, and highly complex. You should be mentally prepared for significant fluctuations.

Swap is the exact opposite. Not only is it cheaper — one of the cheapest forms of leverage available in crypto and TradFi — more importantly, it's predictable: you know exactly what will happen during your holding period. I think this is a major innovation in this space.

Variational raised $50 million in May this year — why?

Our ambition, which I've hinted at bit by bit earlier: not just to compete within the crypto industry and build the best on-chain RWA trading product, but to build the best RWA trading product in the entire financial industry. Whether compared to traditional brokerages or the broader financial ecosystem, I want our experience to be the best. We've talked about why people are still paying fees, and about trading global markets with hundreds or even thousands of instruments through a single account. No one can do that right now. Not in crypto — for the architectural reasons I partially explained earlier; and certainly not in TradFi. I believe we can compete with both at the same time.

So the first reason for the fundraise is that we have big ambitions, and to secure partnerships on the TradFi side, it takes a lot of trust, commitment, balance sheet, and frankly, scale, credibility, and meaningful introductions. We want to bring their liquidity on-chain. A key purpose of the raise is to make ourselves qualified to be taken seriously by the big players—put simply, to have enough ammunition to build these relationships, and now we do. This has been in the works for a long time; the raise is part of the whole chessboard.

Another reason is to give ourselves enough runway to continue expanding at full force. Over the past year, Variational has grown exponentially. In crypto, a year feels like a lifetime—we've been through so many changes, yet a year is actually very short. We need sufficient resources to scale the team rhythmically, leave a buffer, and lay a solid foundation for the future. We're far from the finish line; we've only just begun. We've indeed achieved some good results, and we're glad to see the product has found market fit and that people are enthusiastic about Variational, but we're only just starting to validate this model and demonstrate its potential. So we want to prepare for the future with the right partners and a solid balance sheet.

Is VC money good or bad for a project?

It's a misconception to say VC money is inherently harmful to a project. Investors can indeed have misaligned interests with the project and the community, and unfortunately, this has happened several times in crypto.

But look at the past many years—almost every successful company in and outside of crypto has had VC backing. Some of the best companies in the world, like Google, are already part of my daily life, and I'm grateful for them, and they were all VC-backed. What's predatory about seed funding? What's wrong with maintaining exponential high-speed growth while also bringing connections, resources, and trust? Of course, there are bad apples and counterexamples, but overall, VC money is more like an accelerator.

Back to why and how we raised: when building our cap table, we were very targeted, working only with a few top-tier institutions, each of whom can help us achieve specific goals—such as being the first users, becoming OLP partners, or helping us bridge into the TradFi world. That's how we thought about it, and it has proven to be a huge boost. I'm very grateful to the several lead investors and look forward to continuing to move forward with them.

What's the architectural difference between Hyperliquid and Variational?

Hyperliquid is an exchange with an order book. In traditional finance terms, it's better compared to Nasdaq, NYSE, CME, and other infrastructure. This is a very valuable business and a key part of the financial ecosystem—as I said earlier, one of the three pillars of the trading ecosystem. What's special about crypto is that Hyperliquid also directly faces retail. You and I can't trade directly on the NYSE or Nasdaq, but in crypto, we can place orders directly on the order book. I think this will change.

Variational is an RFQ platform, more like a broker, focused on liquidity aggregation, without its own order book. It is not designed for market makers, high-frequency trading, ultra-low latency price discovery, and order matching, but rather for aggregating liquidity and providing retail investors with the best prices.

So in terms of architecture, the two are almost completely opposite. Of course, there is overlap, such as the fact that BTC perps can currently be traded on both sides. But looking ahead, I believe Hyperliquid will continue to be very successful as an exchange, while the market will naturally shift toward the broker model, especially liquidity aggregation for retail investors, and Variational will be the one leading this trend.

Why didn't Hyperliquid choose an architecture that could directly provide top-tier liquidity for a large number of assets?

Hyperliquid set out from the beginning to be an exchange, which was what the market needed at the time. The crypto world changes too fast. Now Hyperliquid already has several competitors, but when it comes to the exchange business, especially on-chain exchanges, I am still a huge fan of theirs. After all, this is like asking: why didn't Nasdaq or CME build a Robinhood? These are two different businesses, and there is no need to do everything all at once.

I also want to be fair to Hyperliquid. They validated this market in many ways. We used to hedge on Hyperliquid too, and when we were running a proprietary trading firm, we were early users of Hyperliquid. A lot of what we see in the market today exists because Hyperliquid did it first, proving that excellent products can also be built on-chain. They built the exchange first, and if I were at their stage, there would also be many reasons to choose that: at the time, no one had yet built a high-quality on-chain exchange, and even centralized exchanges as a whole were only so-so. So their choice was completely reasonable. But these are two completely different architectures. The timing of our entry gave us the conditions to think about where the future is heading. In my view, it is toward RWA, toward the broker model, toward making retail trading as efficient as possible. That is why we chose this model.

After the points campaign ends, how will Variational secure its footing in fierce competition?

I think that whether before or after the points campaign ends, only one thing really matters: have you used the points period to do good marketing, to help people become familiar with Variational and what makes us unique, and to build enough scale and ecosystem volume to deliver on the roadmap and vision? More critically, have you built a product that people are willing to keep using?

Hyperliquid's example proves that Jeff was right. Hyperliquid built one of the first truly outstanding on-chain exchanges, they did the order book model best, and user stickiness is extremely high. Because everyone trusts Hyperliquid, because it is genuinely a good product, and people genuinely want to use it.

We are the same. The track we've opened up is: the first brokerage model, zero-fee trading, trading hundreds of assets on-chain, bringing TradFi liquidity into RWA trading, and launching innovations like swap.

I still haven't talked much about Variational's future roadmap, and that's intentional — I don't want to make things too complicated. But just like Hyperliquid talked about their roadmap to "carry all of finance," including HIP-3, HIP-4, the prediction markets at the time, and various attempts with chains and with Unit, Variational has a similar plan: business面向 professional institutions, nonlinear derivatives, and so on. But to answer you simply: people will keep using Variational because it is a differentiated product with a great user experience. My goal is to make the product better and better, and to keep doubling down on those structural differences between us and other competitors.

Simply put, what is Variational equivalent to in the financial world?

Let me use finance as an analogy, so it's easier to understand. Variational is the Interactive Brokers or Robinhood of on-chain trading, and it can offer innovations that neither of those two provide, such as derivatives like swap, which don't exist on those two platforms.

To sum it up in one sentence: Variational wants to bring the advantages of the brokerage model and liquidity aggregation to on-chain trading and new types of derivatives.

Let me also compare it from an infrastructure perspective, because the difference between a brokerage and an exchange is crucial. Hyperliquid is an exchange, in the same category as CME, CBOE, and Nasdaq, belonging to the infrastructure layer, equivalent to AWS. Variational is more like Apple: we want to capture the user entry point and build the most usable product. We are built on top of the infrastructure layer, and it's thanks to them that we have our applications and ecosystem, and what we need to do is integrate these resources to give users the best experience.

What is Hyperliquid's most fundamental misjudgment about the future of trading?

Let me take a slight detour on this question. Jeff and his team are outstanding, including Jeff Yan of Hyperliquid, as well as the teams at Shoku and XYZ. They have many deep insights about the future and where the industry is heading. It's just that we choose to compete in a slightly different area.

As we discussed, their decisions to build an exchange, offer perp products, and innovate in areas like 24/7 trading were all well-considered choices. I don't think Hyperliquid will disappear, not in the long term. But I believe it will, as Jeff himself said, play a role similar to AWS, sitting at the infrastructure layer, while Variational sits at the retail-facing brokerage layer. So I think we'll develop in parallel, competing in some areas and cooperating in others.

What fundamental misjudgments might Variational have about the future of trading?

I think innovating on too many things at once is risky, and this comes back to the "arrogance" we talked about earlier.

What we want to do isn't just bring on-chain traders to new derivatives and new platform architectures. These people may already be used to trading on order books, on centralized and decentralized exchanges, trading perps. And here we are saying: come try a new platform, like the brokerage model; come try new tools, like swaps. I even said we'd take on traditional brokerages. That means user education, account onboarding guidance — we have to bring them on-chain step by step, and that's not easy.

So the question is: can the benefits and moats we bring in product quality and differentiated experience outweigh the user migration costs and the education costs we have to invest? That's one of my biggest concerns. And because of that, I'm glad we've already achieved a certain scale, built up considerable buzz, gotten more people to see swaps and actually get them running. I believe time will prove that we can make the masses understand the value of this.

Who wins in the long run? Binance, Coinbase, Hyperliquid, or decentralized protocols like Variational?

I know I'm kind of dodging the question. One possible future is that Variational coexists with the players you mentioned, especially since they're all infrastructure — I see all exchanges as infrastructure. The platforms you just mentioned, we all trade on them, and very likely will continue to.

The beauty of Variational is that we don't bet on any single one. Whichever platform can provide crypto liquidity or 24/7 liquidity, we can use it; and most of our RWA positions are actually hedged in TradFi markets, because that's where liquidity is deepest. I don't think these businesses will disappear anytime soon. I have my own views on Hyperliquid and decentralized trading, transparency, and how they compare to some centralized exchanges, but I appreciate all three types of business. I think we're more like opening up a new market segment. Maybe the real question is: what survives in the future — Variational, or those old-school traditional brokerages with high fees? That's the direction I'm aiming at.

How fast will all of this happen?

Moving hundreds of millions of users and a multi-trillion-dollar industry on-chain sounds like a long process, let alone bringing institutions on-chain, which is the other half of the vision. But looking at RWA alone, I think it will happen faster than people expect.

As I said when you asked me about the first fund, things often go "slowly at first, then suddenly." It was the same with Variational — when our crypto trading business took off last year, it was slow at first and then fast. Now we're starting to feel the "sudden explosion" of RWA: RWA trading is rapidly flowing on-chain, to Hyperliquid, to us, and even to several other platforms, whether it's spot, tokenized derivatives, or equities, whether it's tokenized RWA or derivatives. The power of the exponential curve is truly astonishing, and I think we'll see it in the next few years. We're still at a very early stage. The reason I say that is simply because the market that needs to be brought on-chain is just too large — we're talking about global brokerages and all types of global assets. We have to make trade-offs, but it's coming faster than we expected, and it's happening right now.

How optimistic are you about crypto adoption and prices over the next year?

I look at adoption and price separately. They're certainly related, but Bitcoin and some major coins have very different trading logic from adoption in areas like stablecoins and Agent payments. The value in the latter may flow to stablecoin issuers, stablecoin chains or L2s — more precisely, payment chains — as well as some specific application chains. I think everyone in this ecosystem can get a piece of it.

If I had to give a macro judgment, I'm still bullish on Bitcoin and other major coins as trading assets — they won't disappear anytime soon. We may go through a period of low volatility and sideways consolidation, like what we just experienced; and we'll also see phases of new capital inflows as the global landscape and macro environment change.

Speaking of adoption, I think the crypto industry has been quietly delivering on its original promises. The form isn't exactly what we envisioned during the ICO boom of 2016, 2017, and 2018, nor is it the concepts that were hyped back then. But crypto is quietly becoming one of the primary methods for international forex payments, interbank settlement, and micropayments, and it's deeply integrating into Agent payments, which I'm particularly bullish on. Now Bloomberg, The Wall Street Journal, and other media outlets have dedicated sections tracking the crypto industry — something that was unimaginable five years ago. Of course, the industry has taken many detours, and many projects and ideas were tried and failed. But we saw the dot-com bubble burst in 2001, and many other times, we've seen the mess left behind, yet technology kept moving forward and is still embedded in everyone's daily life today. So I think crypto is actually achieving many of its goals, and the claim that "crypto is dead" is greatly exaggerated. I'm very bullish on crypto infrastructure and very bullish on crypto's full expansion into the entire economy.

What is the ultimate goal of the Variational protocol?

I often ask myself this question. Because to truly put in the effort a founder should, not just me, but our 25-person team. We operate a very large, ambitious protocol that by any metric is a significant part of the crypto economy, and we take it very seriously. So we must have a vision, an ultimate goal, a reason that gets us up every day to keep grinding.

For me, it comes down to two things. First is making trading accessible to everyone on the product side: traders globally should be able to trade global markets without getting stuck by red tape, various restrictions, taxes, fees, and account opening processes that fragment markets absurdly, not to mention enduring predatory fees and platforms. I won't name names, but I'm excited for us to offer a new path that bypasses these obstacles.

Second, more broadly, I love building things people actually use. Watching Variational grow, what we're most proud of is that every day, thousands of new traders are drawn to the products we're innovating. Launching a new technology, watching it get used, and now even seeing it imitated, like some of our ideas on RFQ, that sense of achievement is real. I think for many entrepreneurs, the greatest pride is in creating something with your own hands and then watching people use it. Ultimately, that's what we're doing.

What should everyone remember most from today's conversation?

I think there are two points.

I know I tend to approach questions from a different angle. For most general audiences, or the broader Variational community, the most important thing to understand is: we're trying something entirely new. We're doing a broker model, aggregating liquidity, and bringing TradFi on-chain.

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