Article reprinted from: BlockBeats
Original title: The Genesis Story: How Crypto Found Me
Original author: @hmalviya9
Original text translated by: zhouzhou, BlockBeats
Editor's note: Although the current usage of RWA perpetual products (such as Ostium) has surged, 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, which limits platform expansion. In comparison, HyperLiquid performs better with its more flexible HLP model. In the future, if Ostium shifts to an order book model, reduces fees, and improves market efficiency, it may achieve long-term healthy development.
The following is the original content (for ease of reading, the original content has been reorganized):
In the past month, as the tariff crisis looms, the currency market fluctuates, and the stock market moves like an ECG, the usage of RWA perpetual contracts has seen a staggering increase. @OstiumLabs' total deposits have soared from a stable under $6 million to over $60 million in just one month. Trading volume has also increased significantly. HyperLiquid has also launched @Paxos' PAXG perpetual contract market.
The demand for using crypto derivatives to long or short RWA has become very evident. The question is, are the current solutions good enough? If not, how can they be improved?
Why are these solutions possibly not good?
At the beginning, I mentioned two seemingly contradictory viewpoints: 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, doesn't that 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 find that the funding rate for the gold trading pair (XAU/USD) has reached as high as 30%, and now it is still at 13%.
In comparison, the current funding rate for BTC on Bybit is about half that of Ostium, while the funding rates for BTC on Binance and OKX are only about a quarter of Ostium's. Some might think this is because gold performs better, but that's not necessarily true.
Gold has risen about 50% so far this year, and Bitcoin has seen a similar increase.
Moreover, when we compare the crypto market with traditional financial markets (like CME), the gap becomes even more apparent. If you long gold on CME and roll over your position, the annualized cost is about 6%, only half of Ostium's lowest funding rate, with a difference of 600 basis points.
Seeing such a large price difference, readers engaged in delta neutral trading may feel there is a huge arbitrage opportunity: for example, shorting at Ostium to earn a 13% funding rate while longing on CME at a 6% annual cost. But that's not actually the case.
Because Ostium adopts a model similar to GLP (GMX's liquidity pool), currently if you short on Ostium, you have to pay a 13% funding rate.
This leads to the fact that neither delta neutral traders nor market makers have the incentive to provide liquidity. And this is not accidental; it is a fundamental issue with Ostium's design.
The unsustainability of the GLP model
The GLP model used by Ostium and @GainsNetwork_io, simply put, is not scalable.
The GLP model essentially has all traders betting against the protocol's liquidity pool. It was first introduced by GMX, whose liquidity pool is called GLP. At Ostium, it's called OLP; on Gains, there are various g(asset) vaults.
It is particularly important to note that the GLP/OLP model is very different from @HyperliquidX's HLP model. The pricing model of HLP is hidden and dynamically changing, while the pricing of GLP is fixed and static.
This means that although HyperLiquid also has underlying liquidity providers, the base LP is not the only counterparty, and the funding rate mechanism can continue to incentivize the market toward greater efficiency. However, under Ostium's OLP model, traders must incur losses for OLP's liquidity providers to profit. 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 the risk exposure of RWA.
Although the OLP model helped Ostium quickly ramp up liquidity in the early stages, it has now become an obstacle to their continued growth. Just as HyperLiquid had to eventually relinquish absolute counterparty control over user trades with HLP, Ostium will also need to loosen OLP's dominance over pricing to achieve greater scalability.
A cautionary case has emerged: in terms of relative market share in the gold market, Ostium currently has only $4 million in holdings, while HyperLiquid's newly opened PAXG market has reached $15 million (with lower funding rates and opening costs).
Additionally, Ostium's total locked value is currently $65 million, of which $57 million, or 86% of the funds, are concentrated in OLP. While HyperLiquid is also high, its proportion is about 60%, making it comparatively healthier.
In summary, this model is unsustainable.
Possible directions for the future
Although the above issues could be serious if left unchecked, theoretically, they can all be resolved by changing the model.
If Ostium can shift 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 transaction fees.
OLP can continue to exist but should operate in a more dynamic and flexible form.
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 only for Ostium but also for Gains and all related projects.
The GLP/"casino-style" model can only be used in the cold start phase, and long-term development is unrealistic; this has been repeatedly verified.
