While most Perp DEXs are trying to create products faster and cheaper than Hyperliquid, Variational has taken a different approach by designing a completely different business model. Instead of engaging in a speed and fee race, they have fundamentally reimagined how a perpetual contract trading platform should operate.

From CEX to DEX, whether spot or derivative, the revenue model of traditional trading platforms has been quite straightforward—charging fees. Binance charges 0.1%, Hyperliquid charges 0.025%, which seems to have become an industry standard. However, Variational has achieved true zero fees while still generating significant revenue. Their OLP achieved over 300% annualized yield during April to July 2025, with a total trading volume surpassing 1.2 billion USD. What is the reason behind this?

While most Perp DEXs are still struggling to attract liquidity providers and figuring out how to balance the interests of traders and liquidity providers, what new solution has Variational offered? What is the team's background?

Next, BlockBeats will provide an in-depth introduction to Variational, a project that is redefining the rules of the perp DEX game, to see how they have perfectly combined "technological innovation, business model, and risk engineering" to create a perpetual contract trading platform that can achieve zero fees while maintaining high returns.

The Business Behind Zero Fees

When it comes to zero-fee perp DEXs, most people might immediately think of Lighter. However, Lighter's main source of revenue is the fee income from some large traders and the fees from the early liquidation mechanism, which still leans towards a traditional revenue model.

On the other hand, Variational Omni has completely changed this model by becoming the sole liquidity provider, making profits by internally absorbing all liquidity provision rewards.

When you place an order on the platform, their OLP (Omni Liquidity Provider) will provide you with a quote that includes the buy-sell spread. The spread you pay goes into their pocket as profit, rather than being a fee.

In the past, DEXs had to pay external liquidity providers to provide liquidity while also charging traders to maintain operations—spending money on both ends. Variational's clever move is to act as the liquidity provider, keeping all spread earnings for themselves, naturally enabling zero fees for users. This is somewhat similar to what Robinhood does with "payment for order flow" in stock trading, except it has been moved to the blockchain for more transparency and efficiency.

How Does OLP Make Money?

The profit formula for OLP seems simple: Net Revenue = User's Bid-Ask Spread - External Hedging Cost.

When you open a position on Omni, OLP immediately runs to centralized exchanges like Binance, Bybit, or chain-based DEXs like Hyperliquid to hedge the risk through reverse trading.

Due to the Variational team's institutional-level trading volume and VIP rate advantage, their hedging cost is usually only 0-2 basis points, significantly lower than the 4-6 basis points spread charged to users, thereby ensuring a stable profit margin.

According to the platform's published data, OLP achieved over 300% annualized return during the period from April to July 2025, with this remarkable ROI primarily coming from three factors: a small initial treasury size, rapid increase in trading volume, and an efficient hedging strategy.

However, the sustainability of this return is a question. As the treasury size grows, market competition intensifies, or in the face of extreme market conditions, hedging costs may exceed spread income. Therefore, they have implemented various risk control mechanisms, such as "last-look" rejection mechanism, isolated settlement pools to mitigate risks, and an algorithmic dynamic hedging system.

What Are the Benefits to Users?

Although the treasury is not officially open to the public yet, Variational's product side is already preparing to allow users to deposit USDC into the OLP treasury. 90% of the yield goes to depositors, while the remaining 10% is retained for protocol operation. Of course, a failed OLP hedge may result in principal loss, there may be liquidity crises during extreme market fluctuations, and there is a concentration risk in the single market maker model. Therefore, Variational is also considering launching a mechanism to refund losses to users for the treasury in subsequent releases.

Meanwhile, Variational has already launched a mechanism to refund trading losses. When a user closes a losing position on the Omni platform, the system automatically triggers a random lottery program, and users have a maximum 5% chance to immediately receive a 100% USDC full refund.

These funds come directly from OLP's spread income, with one-sixth of OLP's spread revenue being allocated to a dedicated "Loss Refund Pool" smart contract.

In addition, the platform also provides incentive measures such as spread discounts and trading volume rebates, which similarly involve returning a portion of the market-making profits to active traders. Once the $VAR token is officially issued, the platform plans to use 30% of the protocol revenue to buy back and burn tokens, creating a complete value capture cycle.

Automated Listing: The Paradise for Long-tail Assets

Variational's Automated Listing Engine is also one of their killer features.

Traditional DEXs need to coordinate with external market makers, waiting for liquidity providers to market-make for new assets, a process that often takes several days or even weeks. In contrast, Variational eliminates the coordination delay with external market makers and new assets immediately receive liquidity support once they pass automated review. The system's intelligent security audit mechanism, through automatic contract bytecode and distribution analysis, significantly reduces the risk of malicious contracts such as "honey pot perp," allowing the platform to safely support a large number of long-tail assets.

As of now, Variational has supported 515 tradable tokens, making it essentially the perp dex with the most listings.

Traditional platforms follow a "list first, mine later" approach, requiring external market makers to participate; Variational follows a "list first, have liquidity immediately" approach, where OLP serves as the sole market maker, enabling instant pricing in new markets.

Furthermore, Variational has designed a complete listing-delist loop mechanism, continuously monitoring asset metrics. When an asset falls below the maintenance threshold, an automatic delisting is triggered, settling at the EWMA reference price and delisting to avoid zombie contracts occupying resources in the long term.

Story of the Core Team

The collaboration between the two core founders of this perp DEX, Lucas Schuermann and Edward Yu, dates back to their time on the campus of Columbia University.

Lead technical founder Lucas attended the Columbia University School of Engineering, graduating in 2019 as an Egleston Scholar (an honor typically awarded to the top 1% of the entire school), with a double major in Computer Science and Mathematics during his undergraduate studies.

The head of Quantitative Research, Edward, also hails from Columbia University, majoring in Applied Mathematics. Academically rooted in Bayesian statistics, his research focus has gradually shifted towards quantitative trading.

In 2017, after meeting at Columbia University, they co-founded Qu Capital, a small-scale quantitative investment and research firm based in New York. The company specializes in exploring inefficient opportunities in the digital asset market, with a technological approach of developing their "proprietary high-speed trading infrastructure": more stable exchange connections, smarter smart order routing, and finer execution tools.

This "small but specialized" boutique team was acquired by Genesis Trading on September 19, 2019 (Genesis's first external acquisition, undisclosed valuation). Among the three co-founders of Qu Capital, Lucas and Edward later joined Genesis in core technology and quant positions. To understand why they chose to rewrite perp DEX with an RFQ + OLP (Order-Level Protection) + Isolated Settlement Pool as the underlying framework today, one must take a closer look at Genesis Trading.

Established in 2013, Genesis Trading, a subsidiary of Barry Silbert's Digital Currency Group (DCG), was one of the earliest Bitcoin OTC market makers serving institutional clients. Just citing the most robust in scale 2019, in Q2, its loan origination volume reached $746 million, accumulating $2.3 billion in loans; it has long provided liquidity for large institutions like Circle, Gemini, nearly serving as the "traditional finance entry into crypto" conduit, considered an OTC liquidity leader.

However, after the FTX scandal, Genesis took a nosedive. In 2022, Genesis faced liquidity exhaustion triggered by massive exposures to Three Arrows Capital (3AC) and FTX. On January 19, 2023, its lending department filed for bankruptcy protection, and on May 5, 2024, the court approved the liquidation plan, expecting to return about $3 billion to customers.

How can concentrated exposure and settlement risks amplify into systemic shocks during extreme market conditions? For Lucas and Edward, who have experienced all this firsthand, this is a problem that needs to be addressed and is also the source of Variational's design philosophy.

So, after leaving Genesis in 2021, Lucas and Edward co-founded Variational, continuing to iterate on machine learning, quantitative market making, and decentralized derivative design. In 2024, Variational was officially established, completing a $10.3 million seed round of financing, led by Bain Capital Crypto and Peak XV Partners, with participation from Coinbase Ventures and Dragonfly Capital, among others.

In July 2025, Edward was a guest on the "Flirting with Models" podcast, where he systematically elaborated on the "On-chain OTC Derivatives" and Variational design principles—this was a public deep dive where he integrated Bayesian framework, market-making game theory, and on-chain mechanisms; his personal website quant.am also consistently updates research related to this. Similar content can be found on Lucas's personal website (lucasschuermann.com).

Summary

Variational transposes elements validated in institutional settings to the chain, not simply by "putting matching into a smart contract," but by redesigning the structure of perpetuals from first principles of the business model and risk engineering.

This allows them to avoid Genesis-style concentration risk at the protocol level by compartmentalizing, pooling, and limit-managing each risk channel—making it easier to perform pinpoint stop-losses and auditable provisioning even in extreme scenarios.

Beyond the technological path, the more critical aspect is the business loop: Variational, through vertical integration as a market maker, consolidates the two revenue streams of traditional exchanges, "fees + spread," into a "spread-only" income, leveraging institutional-grade hedging to cover system costs and extreme tail risks, thereby turning "zero-fee trading" into a positive cash flow rather than a subsidy game.

This model intertwines system design, market microstructure, and risk budget into a flywheel, encompassing both engineering aspects of "faster/more stable/more scalable" and business aspects of "more sustainable."

Returning to the human level, Lucas's engineering rigor and Edward's Bayesian mindset are the most stable cornerstones behind this architecture: the former starts from distributed systems and scalable software architecture, emphasizing turning latency, jitter, and throughput into engineering assets that are "measurable, regressible, and canaryable"; the latter starts from statistical decision-making and market-making games, emphasizing turning risk limits, hedging paths, and strategy drawdowns into governance assets that are "explainable, auditable, and autonomous."

Their oscillation between Qu Capital's "artisanal optimization," Genesis's "industrial-scale assembly line," and Variational's "mechanism-level redesign" gradually shaped the underlying character of today's perp DEX and is precisely one of the moats that are most challenging to replicate.

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia