Arbitrum-based crypto derivatives trading protocol Variational raises $10.3 million in seed funding

Variational, a crypto derivatives trading protocol built on the Ethereum Layer 2 network Arbitrum, has raised $10.3 million in a seed funding round.

Bain Capital Crypto and Peak XV Partners (formerly Sequoia India and Southeast Asia) co-led the round, with Coinbase Ventures, Dragonfly Capital, North Island Ventures, Hack VC and others participating, Variational said Wednesday.

Founded in 2021, Variational began raising funds for its seed round in the third quarter of that year, closed it in December, and started operations in January 2022, co-founder and CEO Lucas Schuermann told The Block. Initially operating in stealth mode as a proprietary market maker for two years profitably, Variational later pivoted to build its own DeFi protocol, Schuermann said. Now that the firm has launched its testnet and is preparing for the mainnet, it decided to announce its seed funding, Schuermann added.

The seed round was structured as a priced equity round with 1:1 standard token warrants, Schuermann said, declining to comment on Variational's valuation.

What is Variational?

Variational is a generalized peer-to-peer trading and settlement protocol, Schuermann noted, emphasizing that it is not a decentralized exchange.

"As active participants in crypto OTC [over-the-counter] trading, we saw a number of risks and inefficiencies in the manual nature of bilateral trading," Schuermann said. "We had a vision that any two people in the world should be able to seamlessly execute a customized derivatives contract using automated infrastructure."

Schuermann, a former vice president of engineering at crypto trading firm Genesis Global Trading, co-founded Variational with Edward Yu, who previously served as head of quantitative research at Genesis. The duo left Genesis in 2021 before the firm ceased operations in 2023.

The Variational protocol's first application is Omni, a retail-focused platform for trading perpetual futures. Omni enables traders to take leveraged long or short positions on any time series, with a particular focus on newly launched tokens, baskets, yield/volatility perps and other novel products. OLP, Omni's liquidity provider, aggregates liquidity from centralized and decentralized exchanges as well as over-the-counter trading platforms.

Variational's second application is Pro, a platform for institutional traders. In the future, it plans to support additional applications focusing on areas such as yield generation and lending.

“The Omni Liquidity Provider will be open to community deposits, allowing any Omni user to earn yield based on OLP’s performance," Schuermann said.

Omni is currently live in testnet on Arbitrum Sepolia and will go live on Arbitrum One upon its mainnet launch.

Variational mainnet and token launch schedule

Variational's invite-only mainnet will launch before the end of this year, with a public mainnet expected in the first quarter of 2025, Schuermann said. The protocol's token is also scheduled for release next year, though it will launch sometime after the public mainnet goes live, Schuermann noted.

Although Variational is initially launching on Arbitrum, Schuermann mentioned that the protocol is open to expanding to other blockchains in the future, including both Layer 1 and Layer 2 networks.

Currently based in the Cayman Islands, Variational has a team of seven employees. The firm plans to expand to around 10-15 employees by mid-next year, focusing on hiring for marketing, growth, backend engineering, development operations and quantitative roles, Schuermann said.

The Funding newsletter: Stay updated on the latest crypto funding news and trends with my bimonthly newsletter, The Funding. It's free. Sign up  here !