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I've been watering down this varnish to about 2:1 water/varnish and brushing it onto my models over a coat of GW gloss varnish. Recently, it's been causing some pretty catastrophic frosting, and not just in the recesses. To make matters worse, it's barely even taking off the shine. The more water I add, the more it seems to frost. I've tried applying more coats, but it only exacerbates the problem. How do I fix this and avoid it in the future?
This is the exact bottle:

Frosting happens when you mix the varnish with water or if you lay it on too thick.

If you want to thin it down use e.g. vallejo's airbrush thinner.

An additional layer of pure varnish will probably make the frosting disappear.

Are you using tap water? If you are, then I would recommend switching to distilled water. You should be able to get it at any grocery store/supermarket.

Thanks much, guys. I put on another pure layer of varnish and the majority of the frost went away. I'll pick up some thinner the next time I go to my FLGS, and some distilled water soon as well.