Original title: The Genesis Story: How Crypto Found Me
Original author: @hmalviya9
Original translation: zhouzhou, BlockBeats
Editor’s note: Current RWA perpetual products (like Ostium) have seen a surge in usage, but the GLP-style liquidity model is unsustainable due to high funding rates, zero-sum games between traders and LPs, and a lack of hedging mechanisms, limiting platform scalability. In contrast, HyperLiquid's more flexible HLP model performs better. In the future, if Ostium can switch to an order book model to lower costs and improve market efficiency, it may achieve long-term healthy development.
The following is the original content (for the sake of readability and understanding, the original content has been reorganized):
In the past month, with the tariff crisis looming, fluctuations in the currency market, and the stock market behaving like an electrocardiogram, the usage of RWA perpetual contracts has seen a remarkable increase. The total deposit amount for @OstiumLabs skyrocketed from a stable less than $6 million to over $60 million in just one month. Trading volume has also surged significantly. HyperLiquid has also launched the PAXG perpetual contract market from @Paxos.
The demand for using crypto derivatives to go long or short on RWA has become very apparent. The question is whether the current solutions are good enough. If not, how should they be improved?
Why do I say these solutions might not be good?
At the beginning, I mentioned two seemingly contradictory points: on one hand, traders are indeed using RWA products; on the other hand, I question whether the existing solutions are good enough.
Some might wonder, since users are choosing these platforms, does that not indicate that the current RWA perpetual contracts are good enough? But that's not the case; let me explain with some data.
If we look at the funding rates on Ostium, we can find that the funding rate for the gold trading pair (XAU/USD) once reached 30%, and now it is still at 13%.
In comparison, the current funding rate for BTC on Bybit is about half of that on Ostium, while on Binance and OKX, the BTC funding rate is only about a quarter of that on Ostium. Some might think this is because gold is performing better, but that’s not necessarily the case.
Gold has risen about 50% so far this year, and Bitcoin has seen a similar increase.
When we compare the crypto market with traditional financial markets (like CME), the gap becomes even more apparent. If you go long on gold at CME and roll your position, the annualized cost is about 6%, which is only half of Ostium's minimum funding rate, a difference of 600 basis points.
Seeing such a large price difference, readers doing delta-neutral trades might feel there is a huge arbitrage opportunity: for example, shorting at Ostium to collect a 13% funding rate while going long at CME with an annualized cost of 6%. But that's not actually the case.
Because Ostium uses a GLP-like (GMX liquidity pool) model, if you short at Ostium, you end up paying a 13% funding rate.
This leads to a lack of incentive for both delta-neutral traders and market makers to provide liquidity. This is not coincidental, but rather a fundamental design flaw in Ostium.
The unsustainability of the GLP model
The GLP model used by Ostium and @GainsNetwork_io is simply not scalable.
The GLP model essentially means that all traders are betting against the protocol's liquidity pool. Initially launched by GMX, their liquidity pool is called GLP. By the time it reached Ostium, it was called OLP; on Gains, it is various g(asset) vaults.
It's important to note that the GLP/OLP model is actually very different from the HLP model of @HyperliquidX. The pricing model of HLP is hidden and dynamically changing, while GLP's pricing is fixed and static.
This means that while HyperLiquid also has underlying liquidity providers, the underlying LP is not the only counterparty, and the funding rate mechanism can continue to incentivize the market towards greater efficiency. In Ostium's OLP model, traders must incur losses for OLP's liquidity providers to make money. This is a pure zero-sum game.
Moreover, unlike the HLP model, which can partially hedge exposure on-chain, the OLP model lacks a stable mechanism to hedge RWA's risk exposure.
Although the OLP model helped Ostium quickly raise liquidity early on, it has now become an obstacle to their continued growth. Just as HyperLiquid ultimately had to relinquish absolute counterparty control over user trades with HLP, Ostium will also need to loosen OLP's dominance over pricing to achieve greater scalability in the future.
A warning case has emerged: in terms of relative share in the gold market, Ostium currently has a holding of only $4 million, while HyperLiquid's newly opened PAXG market has already reached a holding of $15 million (and with lower funding rates and opening costs).
Additionally, Ostium's current total locked value is $65 million, of which $57 million, or 86% of the funds, are concentrated in OLP. Although HyperLiquid is also high, its proportion is around 60%, which is comparatively healthier.
In summary, this model is unsustainable.
Possible directions for the future
Although the issues mentioned above could be severe if left unchecked, theoretically, they can all be resolved by changing the model.
If Ostium can switch to an order book model, it can reduce transaction fees, and the funding rates will decrease due to improved market efficiency, while the platform can still profit from charging transaction fees.
OLP can continue to exist, but it should operate in a more dynamic and flexible manner.
In my personal view, as someone who loves the RWA perpetual concept, this is the only sustainable long-term model for RWA perpetual products, not just for Ostium, but for Gains and all related projects as well.
The GLP/"casino-like" model can only be used during the cold start phase, and long-term development is unrealistic; this has been repeatedly verified.
