Written by: tradinghoe
Compiled by: Saoirse, Foresight News
Trading perpetual contracts is not the kind of team sport that requires you to "choose sides".
However, five minutes of browsing the CT platform will lead you to a completely different conclusion. This "extremist mentality" has affected most traders, eroding the competitive advantage they could have gained by maintaining curiosity.
If you post about trying out a new perpetual contract decentralized exchange (Perp DEX), the replies are often filled with extremist sentiment rather than curiosity and discussion. Ironically, those being attacked are usually just looking for better alternatives to improve their trading strategies, but in the eyes of extremists, "exploration" is equivalent to "betrayal."
The real winners and losers
In the perpetual contract market, there are no "winners" or "losers" as extremists imagine. Multiple platforms can coexist and generate profits because they cater to different needs: sometimes serving different types of traders, and sometimes meeting the needs of the same trader in different scenarios.
However, there is indeed a distinction between "winners" and "losers" among traders—the distinguishing factor is not which platform they use, but whether they prioritize "outcome optimization" as their core objective.
Market structure: It's about "specialists," not "competitors."
To understand the perpetual contract market, one must first abandon the "winner-takes-all" mentality. These platforms are not engaged in a "life-or-death struggle," but rather in a "specialized division of labor" within their respective fields.
Hyperliquid
Hyperliquid is a decentralized exchange that runs on its self-developed Layer 1 blockchain, HyperEVM, designed for high performance and scalability. By adopting a "full-chain order book model," Hyperliquid addresses the inherent limitations of automated market makers (AMMs) and off-chain matching engines.
Source: Hyper Foundation
- HyperBFT Consensus Mechanism: HyperLiquid employs the custom consensus algorithm HyperBFT, developed based on HotStuff and its derivative technologies. This algorithm and network architecture are optimized from the ground up to meet the unique needs of Layer 1 blockchains, enabling processing up to 200,000 orders per second with a latency of approximately 0.2 seconds.
- Dual-chain architecture: HyperLiquid mainly consists of two major components—HyperCore and HyperEVM:
- HyperCore: The native execution layer, responsible for managing the core functions of the trading platform, acts like a highly efficient "engine" that supports deep order books and the required liquidity.
- HyperEVM: A layer compatible with the Ethereum Virtual Machine (EVM) where developers can deploy smart contracts and build decentralized applications (DApps) while natively enjoying the liquidity and performance advantages of Hyperliquid.
The core advantage of this architecture lies in the "state consistency" between HyperCore and HyperEVM: no cross-chain bridging is required, eliminating the risk of data inconsistency and latency issues. Applications built on HyperEVM can read and write deep liquidity on HyperCore in real time.
HyperEVM Ecosystem
The HyperEVM ecosystem has attracted a number of core protocols covering areas such as lending, derivatives, yield aggregation, and infrastructure.
Within this ecosystem, core protocols such as HypurrFi, Felix, Harmonix, Kinetiq, HyperBeat, HyperLend, and Project X collectively form the "pillars" of cross-chain fund flows.
To understand HyperEVM, we must start with the "funding entry point":
HyperEVM Ecosystem Details:
https://hyperliquid-co.gitbook.io/wiki/ecosystem/projects/hyperevm
- HypurrFi and protocols like Felix have built debt infrastructure through lending markets, synthetic dollar instruments (USDXL, feUSD), and cash flow products.
- Kinetiq converts locked HYPE tokens into yield-generating liquidity tokens (kHYPE), achieving composability in decentralized finance (DeFi) while retaining staking rewards. Furthermore, the platform supports permissionless HIP-3 exchange deployment through crowdfunding validator node staking.
- Harmonix transforms idle funds into "yieldable liquidity" through automated Delta-neutral strategies and validator staking screening, providing stablecoins with an annualized yield (APY) of 8%-15%.
- Project X is an AMM-type decentralized exchange that supports cross-chain aggregation, enabling zero-fee transactions on EVM-compatible chains with a confirmation time of only 50 milliseconds, and simplifying the user experience (UX) of liquidity provision.
Fee Mechanism
Perpetual contract fees use a tiered system, with rates determined based on a user's trading volume over 14 days. Taker fees and pending order fees will decrease accordingly based on user category and total trading volume.
Perpetual contracts and spot trading use separate fee schedules, but their trading volumes are combined to determine the fee tiers, and spot trading volume is weighted twice – the calculation formula is: (14-day weighted trading volume) = (14-day perpetual contract trading volume) + 2 × (14-day spot trading volume).
Source: https://hyperliquid.gitbook.io/hyperliquid-docs/trading/fees
Each user is subject to the same fee tier across all asset types (including perpetual contracts, HIP-3 perpetual contracts, and spot trading).
HyperLiquid Vault
Hyperliquid Vault is a feature that allows users to "team up and copy trades" to earn profits. It is mainly divided into two types: Protocol Vault and User Vault.
- Protocol vaults (such as Hyperliquidity Provider, or HLP for short): These are directly operated by the platform and earn a share of transaction fees through market making, clearing, and other operations. Any user can deposit USDC and share in the vault's profits and losses.
- User Vault: Operated by "Vault Managers". Users can become Vault Managers by depositing at least 100 USDC and pledging 5% of the total vault value as collateral. Managers are responsible for trading funds within the vault and receive a 10% reward on any profits.
For example: If you deposit 100 USDC into a vault that already has 900 USDC, your share is 10%; if the vault's funds grow to 2000 USDC, you can withdraw 190 USDC - that is, 200 USDC (your share) minus 10 USDC (the manager's share).
Hyperliquid does not have a Market Maker (DMM) program, offers no special rebates/fee incentives, and provides no latency advantages; any user can participate in market making.
Source: https://app.hyperliquid.xyz/vaults
team
Hyperliquid was developed by Hyperliquid Labs, and the platform was founded by Jeff Yan and lliensinc—two Harvard alumni who co-lead the Hyperliquid team.
Other team members come from top universities such as Caltech and MIT, and have worked for companies such as Airtable, Citadel, Hudson River Trading, and Nuro.
Jeff Yan previously led the development of high-frequency trading systems at Hudson River Trading and later founded the cryptocurrency market maker Chameleon Trading; lliensinc has extensive experience in the field of blockchain technology.
In addition, Hyperliquid Labs adopts a "self-funded" model and does not accept any external investment, which allows the team to focus on building core products without being disturbed by external pressure.
Token Economy
Hyperliquid's native token is HYPE, which is the core driving force of the ecosystem, with a total supply of 1 billion. The exchange airdropped 310 million HYPE (31% of the total supply) to 94,000 users.
HYPE’s core uses include: governance rights (holders can vote on platform upgrade proposals) and staking rewards (approximately 2.37% annualized).
The token allocation details are as follows:
- 38.888% (388.88 million tokens): Reserved for future issuance and community rewards.
- 31%: Genesis Distribution
- 23.8%: Core contributors (locked up until 2027-2028)
- 6%: Hyper Foundation budget
- 0.3%: Community funding
- 0.012%: HIP-2 allocation
HIPs: HyperLiquid Improvement Proposals
The governance of the Hyperliquid ecosystem is driven by the native token HYPE.
Token holders participate in platform decision-making by voting on "HyperLiquid Improvement Proposals (HIPs)" on-chain. Any eligible participant can submit a HIP proposal, and HYPE holders vote in proportion to their staking holdings; if a proposal receives sufficient support, the core team will proceed with its implementation.
HIP-3: Developers deploy perpetual contracts
The HyperLiquid protocol supports permissionless deployment of perpetual contracts by developers, a key milestone in achieving a fully decentralized perpetual contract deployment process.
Specifically, HIP-3 allows any user who stakes 1 million HYPE tokens to create a new perpetual contract market on the Hyperliquid blockchain (rather than the Hyperliquid decentralized exchange itself).
If a perpetual contract market is found to have malicious activity or poor management, the HIP-3 mechanism can punish deployers by "confiscating staked HYPE tokens".
Tradexyz
Tradexyz is a decentralized, non-custodial perpetual contract platform built on the Hyperliquid HIP-3 infrastructure. Users can trade cryptocurrencies, stocks, indices, forex, and commodities 24/7 with leveraged perpetual contracts without depositing funds with centralized institutions.
Source: DefiLlama
XYZ is the first project on Hyperliquid deployed based on HIP-3, supporting XYZ perpetual contract trading.
XYZ perpetual contracts are pegged to traditional (non-crypto) asset classes. Like all perpetual contracts, they are settled in cash and maintain price alignment with the underlying asset through funding rates. The trading mechanisms of Hyperliquid perpetual contracts (including collateral management, leverage adjustment, margin modes, order types, etc.) are also applicable to XYZ perpetual contracts.
The XYZ100 Index Perpetual Contract is the first perpetual contract product on the XYZ platform, tracking an "adjusted market capitalization weighted index" of 100 large non-financial companies listed on US exchanges. Consistent with other Hyperliquid perpetual contracts, this contract calculates funding rates using oracle prices, while the mark price is used for margin calculation, liquidation, stop-loss/take-profit triggering, and unrealized profit/loss calculation.
The difference between HIP-3 and HIP-1 and HIP-2
HIP-1 and HIP-2 were early governance proposals focused on spot trading, while HIP-3 focuses on perpetual contracts.
- HIP-1: Introduces token listing standards and a governance-based spot token listing process. The community can create new tokens on Hyperliquid and bid for spot market listing eligibility by staking HYPE.
- HIP-2: Added protocol-native liquidity engine, which can automatically inject liquidity into the order book to ensure that new tokens have deep liquidity on the first day of listing.
Developer code
A developer code is a unique identifier that allows any developer to connect their frontend to Hyperliquid's backend. Every transaction executed through this identifier is routed to Hyperliquid's order book, and the developer is automatically paid a percentage of the transaction fees. The developer fee for perpetual contracts is a maximum of 0.1%, and for spot contracts, it is 1%.
Source: OAK Research
In fact, any trading bot, mobile app, or wallet can use Hyperliquid as its backend infrastructure to provide cryptocurrency trading services to users while earning a share of the transaction fees.
Adoption and Key Indicators
The Hyperliquid team released developer code in October 2024, and its adoption rate has increased rapidly within months since then.
The chart below compares the revenue of various protocols that use developer code (highlighting the top 20):
Source: hypeburn.fun/builders
But HyperLiquid's true success lies not only in its product quality or the largest airdrop in crypto history, but more importantly in the fact that it has built a platform with the deepest liquidity in the market.
Liquidity is the "only truth" in financial markets. However, while DeFi was originally intended to be "open and accessible," this openness has spawned a large number of blockchains and applications, all of which are fiercely competing to attract and retain liquidity.
The history of DeFi development is essentially a "repeating cycle": protocols are born, attract liquidity through incentives or airdrops, and users migrate once a better option becomes available. In this cycle, liquidity is always a "zero-sum game".
The infrastructure built by Hyperliquid has the ability to "retain liquidity".
Source: https://defillama.com/pro/rpzjq3mf5e0w40u
Hyperliquid has established itself on its "deep liquidity," "unique technical architecture," and "market diversity." The platform offers deep order books across major trading pairs and dozens of perpetual contract markets, providing invaluable liquidity for traders managing diversified portfolios or large positions—allowing users to trade multiple tokens without splitting funds across platforms.
Liquidity depth comparison for a $500,000 Bitcoin (BTC) position (with reference to slippage)
Lighter
Lighter is a decentralized exchange built on Ethereum's custom zero-knowledge rollup (ZK-Rollup).
Lighter employs a custom ZK circuit to generate cryptographic proofs for all operations, including order matching and settlement, with final settlement occurring on the Ethereum blockchain. This architecture enables the processing of tens of thousands of orders per second with latency in the millisecond range, while ensuring that the fairness of each transaction can be verified on-chain.
Hyperliquid and Lighter, through different architectures, both achieve "verifiable transaction execution".
Lighter Core Architecture Diagram
Lighter Core
Lighter is essentially a collection of components that work together, and the process is as follows:
- User-submitted signed transactions: Orders, cancellations, settlements, and other operations all require user signatures to ensure no forgery and predictable execution results (the same input corresponds to the same output).
- Transactions enter the system via the API server (located at the top of the architecture diagram):
- The sorter and soft finality: The core of the system is the sorter, which sorts transactions according to the "first-in, first-out (FIFO)" principle and provides "soft finality" to users through the API, creating a smooth experience consistent with centralized exchanges (CEX).
- Witness Generator and Proofer: This is the "core technology link" - the data output by the sorter is transmitted to the witness generator and converted into the input format of the adapter circuit; then, the Lighter proofer, which is designed for exchange workloads, can generate hundreds of thousands of execution proofs in parallel.
- Multi-layer aggregation: To reduce Ethereum gas fees, Lighter uses a multi-layer aggregation engine to compress thousands of independent proofs into a single "Batch Proof," which is then verified on Ethereum.
Escape pod
This feature defines "true asset ownership": in extreme cases (such as when the sorter is attacked or refuses to process user withdrawal requests), the Lighter core will trigger "escape pod mode".
This protocol allows users to submit "priority requests" directly on Ethereum; if the sorter fails to process the request within a preset time, the smart contract will freeze the entire exchange. At this point, users can use the compressed data blocks previously published to Ethereum to rebuild their account state and directly withdraw all assets on-chain, without relying on the Lighter team or off-chain coordination.
Custom Arithmetic Circuits
One of the major challenges facing current Layer 2 scaling solutions is "technical debt"—because they need to simulate the complete Ethereum Virtual Machine (EVM), they have to retain a large number of redundant opcodes that are useless for specific financial scenarios.
Lighter solves this problem by "building custom arithmetic circuits from scratch":
- These circuits are designed specifically for exchange logic and only cover core operations such as order matching, balance updates, and clearing.
- Technical data shows that by eliminating EVM redundancy overhead, the Lighter prover runs significantly faster than zkEVM competitors when processing the same transaction volume, and resource consumption is also greatly reduced—a key prerequisite for achieving the "low latency" required for high-frequency trading (HFT).
Multilayer polymerization
Lighter's ability to offer retail users "zero transaction fees" is not due to short-term subsidy strategies, but rather stems from the "structural cost advantages" brought about by multi-level aggregation.
Source: https://assets.lighter.xyz/whitepaper.pdf
The verification process resembles a "data compression pipeline":
- Batch processing: The proof generator generates execution proofs in parallel for thousands of small transactions.
- Aggregation: The system collects hundreds of thousands of sub-proofs and compresses them into a single batch proof.
- Final verification: Smart contracts on Ethereum only need to verify this final proof.
The economic value of this process lies in the fact that the "marginal cost" of verifying an additional transaction is close to zero, giving the platform a sustainable competitive advantage in operating costs.
Fee Mechanism
Currently, Lighter does not charge take-order fees or order placement fees for standard accounts, and all users can trade for free in all markets; however, premium accounts are required to pay take-order fees and order placement fees.
Lighter Vault
LLP is Lighter's native market-making vault.
The platform features "public liquidity pools" where users can deposit liquidity and earn rewards based on trading activity. LLP tokens represent a user's share in these pools and can be reused within the Ethereum DeFi ecosystem (such as Aave) to achieve "composability" and generate additional rewards.
While LLP’s core role is to ensure deep liquidity and narrow spreads in the order book, it is not the only market maker on the platform – other high-frequency trading (HFT) firms can also run custom market-making algorithms.
team
Vladimir Novakovski is the founder and CEO of Lighter. He has backgrounds in quantitative trading at Citadel, machine learning at Quora, and engineering management at Addepar. He co-founded the social platform Lunchclub and holds a degree from Harvard University.
Financing situation
Lighter completed a funding round on November 11, 2025, with undisclosed details, raising a total of $68 million and reportedly valuing the company at $1.5 billion.
This funding round was co-led by Ribbit Capital and Founders Fund, with participation from Haun Ventures and online brokerage Robinhood.
In addition, Lighter has received support from many top venture capital firms and angel investors, including Andreessen Horowitz (a16z), Coatue, Lightspeed, CRV, SVA, 8VC, and Abstract Ventures.
Token Economy
According to official data, the total supply of Lighter's native token, LIT, is fixed at 1 billion. The token distribution structure achieves a balanced ratio of 50% for "internal stakeholders" and 50% for "external community," as detailed below:
- 26%: Team holding
- 25%: Airdrop distribution
- 25%: Ecological Development
- 24%: Investor holdings
Lighter has established its market position through its "extreme cost control." Its zero-commission model may be a key factor in determining the profitability of a trading strategy for high-volume traders.
For example, with a monthly trading volume of $10 million, Lighter can help traders save thousands of dollars per month compared to platforms that charge a 0.03%-0.05% taker fee, resulting in tens of thousands of dollars in savings annually. Lighter accurately understands that for some traders, "no fees" is more attractive than "having hundreds of trading markets."
They optimized their products around these types of traders, and these traders did indeed feel the value.
Fee comparison between Hyperliquid, Lighter, and other platforms
Extended
Extended is a perpetual contract decentralized exchange (Perp DEX) built by the former Revolut (UK digital bank) team, whose unique product vision revolves around "globally unified margin".
The platform aims to create a "full-category trading experience"—integrating perpetual contracts, spot trading, and the integrated lending market under the same margin system.
The Extended Network, centered around a "globally unified margin," allows all applications within the network to access users' available margin and share unified liquidity, thereby enhancing overall liquidity depth. For users, all trading activity is recorded in a "single global margin account" (which can be shared across multiple applications), eliminating the need to manage multiple application-specific accounts and maximizing capital efficiency through shared margin across decentralized applications (dApps).
Extended employs a "hybrid central limit order book (CLOB)" architecture: order processing, matching, position risk assessment, and transaction sorting are completed off-chain, while transaction verification and settlement are conducted on-chain via Starknet (Ethereum Layer 2 network).
Extended's hybrid architecture fully leverages the advantages of both centralized and decentralized components:
- On-chain settlement + verification + oracle price: Every transaction is settled on the blockchain, and on-chain verification of transaction logic prevents fraudulent or erroneous transactions; in addition, the platform obtains marked prices from multiple independent oracles to reduce the risk of price manipulation.
- Off-chain transaction infrastructure: Off-chain order matching and risk engine, combined with a unique settlement architecture, performs excellently in terms of throughput, end-to-end latency and transaction settlement speed, comparable to centralized exchanges and superior to other hybrid exchanges or decentralized exchanges (DEXs).
Extended Technical Architecture Diagram
Extended aims to achieve a "completely trustless" operating model, a goal achieved through two core principles:
Users have "self-custody rights" over their funds: all assets are stored in smart contracts on Starknet, and Extended cannot obtain custody rights over user assets under any circumstances.
On-chain verification of transaction logic: Any transaction that violates on-chain rules (including illegal liquidation) is not allowed.
All transactions on Extended are settled on Starknet. Although Starknet does not need to rely on Ethereum Layer 1 for every transaction, it inherits Ethereum's security by "issuing zero-knowledge proofs to Ethereum every few hours"—these proofs verify state transitions on Starknet, ensuring the integrity and correctness of the entire system.
team
Extended was founded by the former Revolut team, and its core members include:
- @rf_extended, CEO: Former Head of Cryptocurrency Operations at Revolut, formerly worked at McKinsey.
- @dk_extended, CTO: Architect for four cryptocurrency exchanges, including the recently launched Revolut cryptocurrency exchange.
- @spooky_x10, CBO (Chief Business Officer): Former lead cryptocurrency engineer at Revolut, and one of the major contributors to the Corda blockchain.
While working at Revolut, the team members witnessed millions of retail users entering the cryptocurrency space during the last bull market, but they also discovered that high-quality products were scarce outside of top exchanges, and the overall DeFi experience was poor—which became the impetus for them to create Extended.
Fee Mechanism
Extended has designed a simple fee structure for its perpetual contract market:
- Order taking fee: 0.025% of the notional value of the transaction.
- Order placement fee: 0.000% (meaning there is no transaction fee if the order is placed and completed)
For users, this means "low execution cost of market orders", while submitting "pending orders" (as the party placing the order when it is completed) may not incur direct fees.
Developer code
Extended supports the "Developer Code" feature: Developers who create alternative front-ends for Extended can use this code to route transactions for users and earn "Developer Fees." These fees belong 100% to the developer and can be set individually for each order.
Several external teams are currently working on collaborations related to developer code.
Wallet transaction integration
In addition to expanding its product categories, Extended also achieves "native integration" with wallets—users can directly conduct perpetual contract transactions within the wallet interface (similar to the current Swap exchange function in wallets). This integration allows more retail users to access perpetual contract trading.
Extended vault
This vault actively quotes prices across all extended listed markets using an "automated market-making strategy." Its quoting behavior is jointly constrained by "global and single-market exposure control," "dynamic fund allocation," and "spread management logic," specifically including:
Open-ended management:
- Global exposure cap: If the vault leverage ratio exceeds 0.2 times, quotes will only be made in markets where the vault already has exposure, and only orders in the direction that can reduce existing exposure will be placed – this mechanism acts as a “circuit breaker” to prevent excessive leverage.
- Single-market exposure limits: Each market has a "hard cap" on vault exposure, with stricter limits on less liquid assets to reduce liquidity risk.
Quotation behavior:
- Adaptive spread pricing: Spreads are dynamically adjusted based on market conditions—spreads narrow when the market is stable and widen when volatility increases, in order to reduce the risk of "adverse selection"; at the same time, the quoted spread must be within the preset range to be eligible for rewards.
- Exposure perception adjustment: The vault will make "asymmetric adjustments" to quotes in different directions based on the existing exposure - for directions that may further expand exposure, the quote volume will be reduced and the spread will be widened.
In addition, the vault can also earn "order rebates" through market-making activities.
One of Extended's differentiating advantages lies in its vault system—which allows traders to earn returns while trading perpetual contracts. Through "Extended Vault Shares (XVS)," depositors can earn a base annualized yield (APR) of approximately 15%, in addition to "additional earnings" based on trading activity.
The amount of "extra earnings" a user receives depends on their "trading tier": the higher the tier, the higher the APR (Average Revenue Percentage). Extended trading tiers are divided into "percentiles" and are linked to the user's trading activity, with the specific rules as follows:
- The transaction ranking is updated weekly and synchronized with the points distribution. The update is based on the user's "total transaction points".
- Passive treasury depositors have no trading level and their additional profit coefficient is 0.
- Active traders are divided into 5 percentiles: Pawn (bottom 40%), Knight (bottom 30%), Rook (top 15%), Queen (top 10%), and King (top 5%).
The platform allows XVS to be used as margin, with an equity contribution ratio of up to 90%—meaning that traders can "earn passive income with funds" while "executing leveraged trading with the same amount of funds."
For traders holding large amounts of funds on perpetual contract platforms, the capital efficiency brought about by this "dual use of collateral" (serving as both trading margin and interest-bearing deposit) is something that traditional platforms cannot provide.
Extended Vault Shares (XVS) User Guide
Variational
Variational is a peer-to-peer (P2P) trading protocol that employs a "fundamentally different model." Unlike order book-based decentralized exchanges, Variational uses a "Request for Quotes (RFQ) model." The protocol offers "zero trading fees" across more than 500 markets, while also redistributing profits through "loss refunds" and "trading rebates" mechanisms.
Variational revenue flow and reward mechanism
OMNI: Perpetual Futures Trading
The first application of the Variational protocol is Omni—a perpetual contract trading platform for retail users. Omni allows users to trade in hundreds of markets with narrow spreads and zero commissions, while also offering "loss refunds" and other rewards.
The protocol employs an "internal market maker"—the Omni Liquidity Provider (OLP)—whose liquidity is sourced from CEXs, DEXs, DeFi protocols, and over-the-counter (OTC) markets. The OLP is the first vault to simultaneously run complex market-making strategies and act as the sole counterparty for all users: when a user requests a quote, the OLP selects the best price from the entire market's liquidity pool; the OLP profits by charging a spread typically of 4-6 basis points and does not charge traders any transaction fees.
Furthermore, since the RFQ model only requires the OLP to provide liquidity "when the trade opens", the OLP can simultaneously submit competitive prices on hundreds of trading pairs.
Variational redistributes a significant portion of its revenue to users through two mechanisms:
- Loss Refund: When traders close out positions at a loss, they have the opportunity to receive an immediate full refund of their losses. The probability of a refund ranges from 0% to 5% depending on the "Reward Level" (from no level to "Grandmaster"). To date, the protocol has issued over $2 million in refunds across more than 70,000 trades, with the largest single refund exceeding $100,000. The mechanism is funded by 10% of the OLP spread revenue.
- Trading rebates: Active traders can earn rebates based on their trading volume and enjoy spread discounts—the higher the trading volume, the more value is returned to the trader.
Variational covers over 500 markets, making it the platform with the broadest market coverage in the perpetual contract decentralized exchange (Perp DEX) space. Through its automated listing engine (which leverages liquidity aggregated from CEXs, DEXs, DeFi protocols, and OTC markets via OLP), new assets can be listed within hours. Furthermore, Variational boasts a customizable internal oracle for rapid support of new assets and plans to launch exotic assets and innovative markets in the future.
On the Omni platform, "on-chain transaction processors" cover the gas fees for user deposits and withdrawals, and pay the gas fees when funds need to be transferred from the OLP to a new settlement pool—eliminating the hassle for users to manage gas fees across different transaction operations.
Variational's model meets the unique needs of traders seeking "downside protection," "exotic market access," and "profit return based on trading activity."
PRO: Institutional-level OTC Derivatives Trading
Omni focuses on the perpetual contract market, while Pro targets "institutional traders who need to go beyond standard perpetual contracts." Pro expands the RFQ model by "allowing multiple market makers to compete for the same quote request in real time," offering greater transparency and better pricing compared to the current "negotiated via Telegram groups" model.
Pro aims to achieve "transparency and automation of OTC derivatives trading," transforming this "slow-paced, opaque, and high-risk" market into "efficient and fair on-chain infrastructure."
team
Variational was co-founded by Lucas Schuermann and Edward Yu. The two met while studying engineering at Columbia University (both students and researchers at the time) and founded the hedge fund Qu Capital in 2017. In 2019, Qu Capital was acquired by Digital Currency Group (DCG), and Lucas and Edward subsequently became Vice President of Engineering and Vice President of Quantitative Trading, respectively, at Genesis Trading (DCG's institutional-grade crypto trading platform).
In 2021, after Genesis processed hundreds of billions of dollars in trading volume (at the time, Genesis was one of the largest trading teams in the crypto space), Lucas and Edward left to found Variational, a proprietary trading firm. The company initially raised $10 million in funding, successfully ran trading strategies for several years, and integrated with almost all CEXs and DEXs. Afterward, the two decided to use Variational's trading profits to develop the "Variational Protocol".
The goal of Lucas and Edward in developing the Variational protocol is to return market-making profits to traders through Omni and to address the "pain points of institutional OTC trading" that they have personally experienced in the industry through Pro, thereby realizing the on-chain transformation of OTC trading.
Variational's development and quantitative teams are composed of industry veterans who have been active in the field of crypto algorithm trading since 2017. Members have worked at institutions such as Google, Meta, Goldman Sachs, and GSR. The core technical team members all have more than 10 years of experience in software engineering or quantitative research.
Financing situation
Variational completed a funding round on June 4, 2025, raising a total of $11.8 million.
The project has received support from numerous industry-leading institutions, including Bain Capital Crypto, Peak XV (formerly Sequoia India/Southeast Asia), Coinbase Ventures, Dragonfly, Hack VC, North Island Ventures, Caladan, Mirana Ventures, Zoku Ventures, and others.
Fee Mechanism
The Omni platform has no transaction fees.
Omni charges a flat fee of $0.10 per deposit or withdrawal to prevent spam transactions and cover gas costs.
OLP (Omni Liquidity Provider)
Omni Liquidity Providers (OLPs) are "vertically integrated market makers" and are the sole counterparty for all trades on the Omni platform.
OLP can be divided into three core components: vault, market-making engine, and risk management system.
Vault : The vault is a smart contract that stores OLP operating funds (USDC). It is both the source of OLP margin and the collection point for OLP market-making revenue.
Market Making Engine : OLP runs a sophisticated market-making strategy, responsible for generating competitive quotes for every trade on the Omni platform and acting as the counterparty. OLP uses a proprietary algorithm to analyze real-time data (such as fund flows and volatility) from centralized exchanges (CEXs) and on-chain data to determine fair prices; the core objective of the market-making engine is to maintain the narrowest possible spreads across all markets.
The market-making engine upon which OLP is based is the core technology that Variational's founding team has been continuously using and optimizing over the past 7 years.
OLP as the sole counterparty
On the Omni platform, both the OLP and the user must comply with the "margin requirements" for each transaction - both parties must deposit margin in the "settlement pool". If the margin level is lower than the requirement, liquidation may be required.
One of the core differences between Omni's design and other platforms is that "OLP is the sole counterparty for all trades," which brings traders several advantages:
- Zero transaction fees: Since Omni's market making is entirely handled by OLP (no external market makers are required), the platform does not need to earn revenue through transaction fees.
- Loss refund: A portion of the spread profit will be directly returned to the trader through the "loss refund mechanism".
- Market diversity: OLP only requires a "reliable price source", "quoting strategy" and "hedging mechanism" to launch a new market - all of which can be built and maintained internally. This allows Omni to currently cover about 500 tradable markets and support "real-world assets (RWA)" and other exotic markets in the future.
The profit-making process of OLP is as follows:
- OLP continuously determines a "fair spread" for each asset;
- Users trade with the OLP based on the prices quoted by the OLP;
- OLP hedges directional exposures accumulated by traders' actions through external platforms as needed.
The Variational protocol allocates 10% of Omni's spread profits as a "refund pool" to issue refunds to traders who have suffered losses. This mechanism essentially returns a portion of OLP's profits to users, providing traders with a "downside risk buffer" while simultaneously enhancing platform user stickiness.
OLP funding sources
Initially, the Variational team provided seed funding for the OLP (Omni Liquidity Provider). Once the system has been validated on the mainnet over a long period, demonstrating its stability and establishing a good track record in generating market-neutral returns, the team plans to open deposit functionality to users through a community treasury.
Variational Oracles: Provide price and market information for all assets supported by the Variational Protocol.
Variational dataflow program:
The oracle works by streaming multiple different real-time data streams for each listed market and generating a final price using a weighted combination of prices from different exchanges. With its customizable internal oracle, Variational can quickly support new assets and (in the future) launch specialized categories and innovative markets.
Omni's "perpetual contract launch without permission" feature is implemented by its custom oracle—which can autonomously assess price reliability, decentralization, and market activity before activating a new market.
Trading via Request for Quotation (RFQ)
Variational is a protocol based on the Request for Quotation (RFQ) model and does not use an order book mechanism.
Source: https://hummingbot.org/blog/exchange-types-explained-clob-rfq-amm/#request-for-quotation-rfq-exchanges
From a macro perspective, a price inquiry system consists of two parts: the "receiver" who initiates a price request, and the "market maker" who responds with a buy price and/or sell price. The general price inquiry process at the protocol level is as follows:
- The receiving party creates a request for quotes by selecting the product structure they wish to trade. For example, an Ethereum futures contract with a settlement date of January 1, 2026. The receiving party can broadcast the request for quotes to all market makers globally or send it only to a specific whitelist of market makers.
- Eligible market makers can submit prices in response to inquiries. Each quote includes transaction terms, as detailed below:
- Transaction execution price: Market makers can quote a two-sided price (including both the buy and sell prices) or a one-sided price (only the buy price or only the sell price).
- Transaction Settlement Pool: The pool to which the transaction will be settled. This can be an existing cooperative pool between the two parties (if one exists), or a new pool created concurrently with this transaction. Regardless of whether an existing pool or a new pool is used, margin requirements, settlement penalties, and other pool parameters must be clearly defined at this stage before the quote is accepted.
- If the terms meet expectations, the acceptor may choose to accept a particular offer. At this stage, the acceptor needs to approve the smart contract call to transfer the collateral into the liquidity pool; however, it should be noted that the funds will not be actually transferred before the market maker enters the "final confirmation phase".
- The market maker has the "final viewing right" and can make final confirmation of the transaction and all terms. If the market maker provides final "confirmation" by approving a smart contract call, the transaction to be executed will enter the clearing process; if a new settlement pool needs to be created, it will also be completed at this stage. At this point, the collateral of both parties will be transferred into the pool, the transaction will be officially registered and recorded, and the new position will also be reflected in the pool's ledger.
In summary, Variational represents a distinctly different model for derivatives trading. By combining a Request for Quotation (RFQ)-based execution model with vertically integrated liquidity providers (such as OLPs), Variational becomes a fully functional, perpetual decentralized exchange (DEX) aggregator—integrating decentralized liquidity from CEXs, DEXs, DeFi protocols, and over-the-counter (OTC) markets into a single, zero-fee trading interface.
The resulting system not only provides institutional-grade pricing, broad market coverage, and efficient capital utilization, but also returns a portion of market-making profits directly to traders through loss refunds and rebate mechanisms. In an industry where traditional perpetual contract decentralized exchanges rely on external market makers and collect fees, Variational internalizes liquidity supply, coordinates incentive mechanisms for all parties, and eliminates unnecessary intermediaries. This design transforms Variational from a mere perpetual contract trading platform into an execution layer connecting retail and institutional trading within a unified on-chain framework.
Key points
The long-term development of decentralized exchanges (DEXs) is not a "winner-takes-all" competition, but rather a cycle of gradual improvement driven by self-custody needs and capital efficiency. As traders increasingly value control over their assets, the attractiveness of DEXs will continue to grow.
However, when the perpetual contract DEX (Perp DEX) craze takes off, dozens of teams inevitably rush to launch low-cost forks and point-driven clones—projects not designed to optimize the trader experience, but rather to extract fees from users chasing the "next big DEX" before the window of opportunity closes. This late-cycle behavior has occurred in every successful industry boom, essentially indicating that the market has reached saturation, at which point protecting capital is the optimal choice.
The current market situation bears a striking resemblance to the broader cyclical patterns of the cryptocurrency industry:
- Paradigm Shift and Huge Success: Outstanding Pioneers Reshape Industry Expectations. For example, Hyperliquid pioneered deep on-chain liquidity and a unique technical architecture, setting a new industry benchmark.
- Followers with a real value proposition: Protocols like Lighter (LIT) and Variational stand out with specific structural advantages (Lighter focuses on zero transaction fees, while Variational adopts a zero-fee, quote-based aggregator model and offers transaction rebates).
- Market saturation and low-quality latecomers: As the popularity of related concepts rises, a large number of latecomers and derivative forks emerge, most of which offer little to no real differentiation beyond speculative gains. This mirrors the saturation phase experienced by the early perpetual contract market, including NFTs, interest-bearing stablecoins, the ICO wave, and even GMX and its numerous forks.
This pattern is a structural feature of the cryptocurrency industry narrative:
- Early adopters gain an advantage because they establish new paradigms that most traders have not yet incorporated into their pricing considerations.
- If early followers can achieve significant differentiation, they can still capture a certain market share.
- Those who come later face two realities:
- Most platforms will never achieve true liquidity, nor will they be able to offer any significantly better services to professional traders.
- For users, once a certain type of market becomes crowded, it is usually wiser to preserve funds than to spread them out into redundant liquidity mining projects.
Differentiation is the core driving force of paradigm shift:
- Hyperliquid is able to drive a paradigm shift because it combines deep unified liquidity, on-chain order books, and centralized exchange (CEX) level performance on its self-developed Layer 1 network.
- Lighter differentiates itself through a clear and unwavering positioning: zero transaction fees.
- Variational, on the other hand, chose a completely different approach, adopting an RFQ-based aggregator model to integrate the dispersed liquidity across various platforms and return a portion of the market-making profits to traders.
Industry paradigms are constantly shifting, and in some cases, competitors may survive, but what ultimately determines their survival is the unique value they offer.
If you are participating in liquidity mining on a perpetual contract DEX, and the platform is highly similar in function to the aforementioned projects (Hyperliquid, Lighter, Variational, etc.) – the same order book, only committed value without pre-token value, the same points system – then you have likely missed the best time to enter the market.
"If I can't seize new and better opportunities, what's the point of me staying here?" — JEZ
