Dragonfly Partner: Hyperliquid's Order Book Model Cannot Solve RWA Liquidity Issues, Variational's RFQ Model Can

Odaily Planet Daily News: Dragonfly partner Haseeb Qureshi posted on X stating that the Central Limit Order Book (CLOB) model cannot solve the liquidity problem of RWA assets. Hyperliquid has indeed mastered liquidity for a few macro RWA assets, but beyond the top 10 assets by trading volume (which account for approximately 90% of volume), liquidity drops off a cliff.

The order book model can work when retail demand is strong enough, but if every asset requires its own order book, it means you have to cold-start demand ticker by ticker, subsidizing and "renting" liquidity, ultimately resulting in a collection of markets with thin liquidity.

Variational bypasses all of this with the RFQ (Request for Quote) model. RFQ is the true way institutions trade. In this model, market makers provide instant quotes on demand and hedge in primary trading venues after the order is entered. This allows Variational to directly tap into TradFi's mainstream liquidity and map it onto the chain – with margins managed in smart contracts, settlements completed using stablecoins, and liquidity sourced from users who already trade in the largest underlying markets like the CME and NYSE.

This means anyone can permissionlessly access the same market depth and spreads as traditional markets. Once the cold-start problem is solved, the launch speed for new markets can be as fast as releasing software. It is expected that by next year, RWA perpetual contracts will become the largest contract category on-chain, even surpassing the combined volume of BTC and ETH perpetual contracts. Ultimately, the platform that wins this race will not look like a traditional exchange.

News from yesterday: Variational announced the completion of a $50 million Series A funding round, led by Dragonfly Capital, with participation from Bain Capital Crypto and Coinbase Ventures.