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Onchain infrastructure for derivatives have historically mirrored centralized systems. Think order books, external market makers and fee-based business models. This has left structural inefficiencies which often leave users paying the price. These inefficiencies are even more glaringly obvious in the OTC derivatives market, where trades are still oftentimes arranged in telegram groups, negotiated manually and settled on trust.

Variational, a crypto-native infrastructure company founded by Columbia University Alumni Lucas Schuermann and Edward Yu, is tackling these challenges head-on. The team has designed the Variational Protocol, which intends to introduce a new model of how derivatives can be booked, settled and cleared onchain for both retail and institutional traders.

What is the Variational Protocol?

At the core of it, the Variational Protocol operates as infrastructure that enables automated booking, settlement and clearing of customizable derivatives. Unlike orderbook based decentralized exchanges, the Variational Protocol uses a request-for-quote (RFQ) model, where traders request a price and market makers can respond with executable quotes. 

Once both parties agree on a quote and terms of the trade, they must also post a margin into an isolated onchain escrow contract (otherwise known as a settlement pool). This escrow contact contains pre-defined rules for margin requirements, liquidation and settlement. The Variational Protocol was intentionally designed to be highly customizable, and is able to support the trading of perpetual futures, options, and other derivatives.

Omni: Retail Trading of Perpetual Futures

The first application built on the Variational Protocol is Omni, a retail-facing platform. Omni routes all trades through the Omni Liquidity Provider (OLP), a professional market-making desk which is operated by the team.

This design allows Omni to capture spread revenue, which is usually leaked to external market makers in exchange for providing liquidity. Because of this new source of revenue, Omni is multiple times more profitable per dollar traded than any other exchange, enabling the platform to offer traders a plethora of benefits. Some of these trading benefits include permanently zero fees on all markets for all users, a loss refund lottery system, spread discounts based on VIP tier, platform credit, and more.

Additionally, since the RFQ model only requires OLP to provision liquidity when trades are opened, OLP is able to quote competitively across hundreds of pairs simultaneously. Omni currently supports around 515 markets on Arbitrum mainnet. 

Pro: Institutional-Grade OTC Derivatives

With Omni tackling the retail market, Pro is designed for institutional traders who need more than just standard perpetuals. Pro extends the RFQ model by enabling multiple market makers to compete for a single request for quote in real time, providing transparency and better pricing than the current "negotiate in telegram groups" model.

Pro is designed to make OTC derivatives trading transparent and automated. Turning what is a slow, opaque, and risky market, into efficient and fair on-chain infrastructure.

Built on Arbitrum

Variational wanted to build its protocol in an ecosystem where the users were already there. By deploying on Arbitrum, Variational was able to tap into the deepest pool of traders in the crypto ecosystem.

In addition to its large trading-focused userbase, Arbitrum has built a reputation for being one of the most trusted and technically advanced L2s. Its design makes sure that funds can always be bridged back to Ethereum in a secure way. Arbitrum also offers composable technical features, making it a top choice for Variational to launch its protocol. 

Results and Next Steps

The Variational protocol has already shown promising results on Arbitrum. According to information collected on July 22, 2025, performance over the past 90 days show that OLP’s annualized yield currently exceeds 300%, even with the zero-fee model already implemented.. 

Over the coming weeks, Omni will make its loss refund mechanism available, with additional activations to come in the latter half of 2025. 

Variational shows that rethinking the structure of derivatives trading can unlock new opportunities for users and protocols, creating a system that aligns both protocol and user incentives.