About Variational

What Is Variational?

Variational is a decentralized, non-custodial RFQ platform to trade and clear bilateral derivatives, built on Arbitrum.

Variational allows you to safely trade bilateral derivatives on any token. Important things to know:

  • RFQ based: users submit a request-for-quote on a specific market they'd like to trade. Liquidity providers respond with quotes and the user may select the best one. Users can also respond to RFQs by providing bids and offers.

  • Bilateral: all trades are done peer-to-peer. We also interchangeably refer to this as bilateral or OTC (over the counter). Trades are booked to settlement pools, which is a ledger of open positions and collateral between two parties. For each counterparty you trade against, you will have one (or more) settlement pools. Positions are not fungible between pools, and assets are not commingled between pools.

  • Fully customizable: almost every aspect of the trading, clearing, and settlement process is customizable. Terms are decided before any trade is done and agreed upon by both parties. You can decide to only request quotes from your whitelist of counterparties. You can adjust margin requirements on a per pool basis. You can decide to auto liquidate your counterparty when they fall below margin requirements, and impose a liquidation penalty.

Why Use Variational?

Our long term vision is simple: let users trade any derivative imaginable on any time series imaginable, while giving you full control over the trade lifecycle.

Our unique bilateral design comes with tradeoffs. For use cases that involve trading very liquid assets at very high frequencies (on say, BTC-PERP), there are many good exchanges out there. We don't view ourselves as an exchange or as competitors to an exchange.

Variational enables use cases beyond what an exchange can offer. Some examples:

  • OTC liquidity on thinly traded derivatives (for example, altcoin options). Request quotes from a global pool of liquidity providers and get the best price.

  • Perpetual futures and dated futures on all tokens, even ones that have not been listed on exchanges. An exchange has to deliberately list and enable trading on every token they want to offer. In contrast, Variational bulk imports underlying data feeds (for example, every token available on Uniswap) and lets users build their own derivatives on these underlying time series. This is only possible in a bilateral model as the platform does not take on insolvency risk from liquidations.

  • Block trades on structured products that are negotiated offline and booked onto Variational to automate operations and back office processes. For example, a systematic covered call program can be automated via API on Variational, with the platform handling the margin alerts and settling options as they expire, all while generating accounting records for export.

  • In the future: prediction markets, interest rate derivatives, exotic options, and more can be enabled with the core infrastructure handling the trade lifecycle.

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