RWA Sustainable Product Crisis: Why is the GLP model destined to be unable to sustain RWA Sustainable?

Original text: The Genesis Story: How Crypto Found Me
Author: @hmalviya9
Compiled: zhouzhou, BlockBeats

Editor 's note: Although the current RWA perpetual products (such as Ostium) use surges, the GLP liquidity model is unsustainable, due to the high capital fee rate, zero-sum game between traders and LP, and the lack of hedging mechanism, the platform expansion is restricted. In contrast, HyperLiquid performs better with a more flexible HLP mode. In the future, only if Ostium turns to the order book model, reduces costs and improves market efficiency, can it achieve long-term and healthy development.

The following is the original content (to facilitate reading comprehension, the original content has been compiled):

The use of RWA perpetual contracts has seen a staggering increase in the past month as the tariff crisis approaches, the money market fluctuates, and the stock market fluctuates like an electrocardiogram. @OstiumLabs' total deposit volume surged from a stable amount of less than $6 million in just one month to more than $60 million. Trading volume also rose sharply. HyperLiquid also launched @Paxos's PAXG perpetual contract market.

The demand for long or short RWA with crypto derivatives is already very obvious. The question is, is the current solution good enough? If not enough, how can we improve it?

Why are these solutions probably not good?

In the beginning, I mentioned two seemingly contradictory points: on the one hand, traders are indeed using RWA products; on the other hand, I question whether the existing solutions are good enough.

Some people may wonder, since users are choosing these platforms, doesn’t it mean that the current RWA perpetual contract is good enough? But that's not the case, let me explain it with some data.

If we look at the funding rates on Ostium, we can see that the funding rates for gold trading pairs (XAU/USD) were once as high as 30%, and now there is still 13%.

By comparison, the current funding rate for BTC on Bybit is about half that of Ostium, while the BTC on Binance and OKX is only about a quarter of that of Ostium. Some people may think that this is because gold performs better, but it may not be.

Gold has risen about 50% so far this year, and Bitcoin has gained about the same.

Moreover, when we compare crypto markets with traditional financial markets (such as CME), the gap is even more obvious. If you are long for gold in CME and have a rolling position, the annualized cost is about 6%, which is only half of Ostium's minimum capital rate, a difference of 600 basis points.

Seeing such a large price difference, readers who do delta neutral (no directional risk) trading may feel that there is huge arbitrage space: for example, shorting at Ostium, charging a 13% capital fee rate, and going long at CME, paying an annualized cost of 6%. But in fact, this is not the case.

Because Ostium adopts a GLP (GMX-like liquidity pool) model, if you short at Ostium, you have to pay a 13% capital fee rate.

This leads to neither delta neutral traders nor market makers having the motivation to provide liquidity. And this is not accidental, but a fundamental problem in Ostium design.

Unsustainability of the GLP model

The GLP model used by Ostium and @GainsNetwork_io, simply put, cannot be developed on a large scale.

The GLP model is essentially a bet against the fund pool of the agreement. Originally launched by GMX, their funding pool is called GLP. When it comes to Ostium, it is called OLP; on Gains, there are various g(asset) vaults.

It should be noted that the GLP/OLP mode and the HLP mode of @HyperliquidX are actually very different. The pricing model of HLP is hidden and dynamically varied, while the pricing of GLP is fixed and static.

This means that although HyperLiquid also has basic liquidity providers, basic LP is not the only counterparty, and the capital rate mechanism can continue to incentivize the market to move more efficiently. In Ostium's OLP model, traders must lose money before OLP liquidity providers can make money. This is a complete zero-sum game.

Moreover, unlike the HLP mode that can hedge exposures in part on-chain, there is no stable mechanism to hedge the risk exposure of RWA in OLP mode.

Although the OLP model helped Ostium quickly raise liquidity in the early days, it has now become a barrier to their continued growth. Just as HyperLiquid finally had to let go of HLP's absolute counterparty control over user transactions, Ostium also needs to loosen OLP's dominance over pricing in the future in order to achieve greater expansion.

A warning case has emerged: in terms of the relative share of the gold market, Ostium currently has only US$4 million in the gold market, while HyperLiquid's newly opened PAXG market has reached US$15 million (and the capital rate and opening costs are also lower).

In addition, Ostium's current total lock-in volume is US$65 million, of which US$57 million, or 86% of the funds, are concentrated in the OLP. Although HyperLiquid is also high, it accounts for about 60%, which is healthier in comparison.

In summary, this model is unsustainable.

Possible directions in the future

Although the above problems will be serious if left alone, they can theoretically be solved by changing the pattern.

If Ostium can switch to the order book model, it can reduce handling fees, and the capital rate will also decrease due to the improvement of market efficiency. At the same time, the platform can still make profits by charging transaction fees.

OLP can also continue to exist, but should operate in a more dynamic and flexible form.

In my personal opinion, as someone who loves the concept of RWA sustainability, this is the only sustainable long-term model for RWA sustainable products, not only for Ostium, for Gains, but also for all related projects.

The GLP/"casino-style" mode can only be used in the cold start stage, and long-term development is unrealistic, which has been verified many times.