
To see Variational co-founder @variational_lvs’ full explanation of why we raised more from VCs during an anti-VC meta, check out his post 👇

https://t.co/5ZSmRn6F5b

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Why we raised more from VCs during an anti-VC meta:

It’s no secret that most crypto holders and traders aren’t the biggest fans of venture capital right now. After years of the low-float/high-FDV launch meta extracting from retail, followed by Hyperliquid breaking out as the most successful project of the past few years with no VCs, this VC skepticism is definitely warranted.

Despite the anti-VC sentiment on the timeline these days, we still chose to raise a (small) second round of funding. Here’s why:

1. Hyperliquid is focused on traditional perps and spot trading. With Variational, we're focused on permissionless perps with Omni and institutional OTC derivatives trading with Pro.

While we’ve been almost exclusively focused on Omni for the past year, the Variational Protocol is built for much more than only retail perps trading. Our next app, Pro, is designed to compete with Deribit, Paradigm, and existing manual processes by bringing institutional OTC trading on-chain. This seismic shift to the institutional trading status quo requires market makers to onboard and embrace moving antiquated processes on-chain (you can read more about our plans for Pro here: https://t.co/sz4jZw8qUD).

A major reason for our strategic raise was to align high-quality institutional market makers early, so that we could enlist their support as design partners with Pro. It is extremely hard to solve the cold-start problem of institutional trading without aligned institutional partners, but once the cold-start problem is thawed, network effects begin accumulating fast.

(For the record, we have loved what Hyperliquid is building since we became early users in 2023. Hyperliquid is an important hedging venue for OLP. We expect Hyperliquid and Variational to coexist, with Hyperliquid dominating CLOB trading and Variational dominating RFQ trading–both have different use-cases and tradeoffs.)

2. We were in a unique position (already well-capitalized with a strong product) to be extremely selective with who we brought into the round.

As I’ve posted about before, the vast majority of Variational’s development thus far has been funded by our past trading profits from market making.

https://t.co/uCsfdc5c7Y

We are not in need of cash, Omni’s metrics are all trending strongly up, and institutional demand for Pro remains strong, all of which put us in a strong position for this raise. We were incredibly selective about who we let into the round, and severely limited maximum check sizes. With many institutions and VCs looking for exposure to Pro, we were able to pick the cream of the crop who we know will help bootstrap institutional OTC trading on Pro.

All of this was done to protect against token dilution, and ensure new names brought onto the cap table have direct ways to contribute to Variational’s long-term growth (with a specific focus on Pro).

3. Partners will help make Omni better faster.

While our quant team has done great work tightening spreads across Omni’s hundreds of listings, some of the partners we brought in to this strategic round could directly help list more interesting markets on Omni faster.

For example, Caladan could help Omni list exotic markets by collaborating on quoting and helping offload some of the hedging flow. Mirana could help support OLP with additional TVL if needed to allow Omni to handle more OI.

In summary, we didn’t need to raise additional cash–our sole goal was to align long-term partners who will contribute to the Variational protocol in meaningful ways. With specific value-add plans for each new partner, we expect this raise to drive significant value to the Variational Protocol over the long-term.