Tokenization of real-world assets (RWAs) has gained significant traction over recent years. Institutions and banks are continuously exploring the idea of moving assets like stocks or funds on-chain. Tokenized RWAs can enable benefits such as increased trading hours, reduced friction with peer-to-peer transactions, and potentially enhancing liquidity.
Ondo Finance aims to bridge decentralized finance (DeFi) and established financial markets with its platform by enabling the trading of tokenized securities backed by traditional assets (like securities or ETFs).
The project launched its first products on Ethereum in early 2023 and has gone on to achieve significant traction since. It’s become one of the higher-ranked projects in its category, with a market cap exceeding $1 billion by the second quarter of 2024 and over $400 million in total value locked.
How was Ondo Finance developed?
Ondo Finance was founded by Nathan Allman. Allman studied at Brown and Stanford and worked in traditional finance, including at Goldman Sachs. He established Ondo in 2021 with the goal of bringing traditional assets on-chain and stimulating innovation in the traditional financial industry.
In August of that year, the project raised $4 million in seed funding in a round led by Pantera Capital. The following year, it raised a further $20 million at Series A from private investors and another $22 million in a public token sale.
In January 2023, Ondo launched its tokenized treasury products on the Ethereum blockchain. It later expanded to Solana and integrated with Cosmos via a partnership with Noble, an asset issuance chain.
In 2024, the project launched Ondo Global Markets, a platform allowing securities to be traded in real-time using tokenized representations.
How does Ondo Finance work?
The project currently offers tokenized versions of funds, such as exchange traded funds (ETFs) or money market funds, issued by companies such as Blackrock. Tokens are minted to represent these assets, which are held in custody by the issuer. Effectively, users can buy or trade these funds without needing to navigate a broker or take custody of the underlying asset.
The project offers several products available to both general investors or to qualified institutional investors.
USDY
USDY, which stands for US Dollar Yield, is a token backed by short-term US Treasuries and bank demand deposits, which comply with US regulations. USDY aims to offer the accessibility of stablecoins with a yield-generating product. The APY fluctuates around 5%.
OUSG
OUSG is Ondo’s flagship product available to qualified institutional investors, with a comparable yield to USDY.
OUSG (Ondo US Government Treasuries) was initially backed by one of Blackrock’s short-term US Treasuries ETFs. However, in late March 2024, Ondo announced it was moving $95 million worth of assets to a brand-new tokenized fund issued by Blackrock called BUIDL. This fund is fully backed by a combination of cash, US treasury bills, and repurchase agreements. The advantage of the shift is that Blackrock’s new fund enables 24/7 trading, which is supported by Ondo, allowing investors to subscribe and redeem their investments when they wish.
Flux Finance
Flux Finance started out as Ondo’s lending protocol. It’s a fork of the Compound code and operates in a similar way using liquidity pools from which borrowers can access credit. The platform is now owned and operated by Neptune Foundation, but still allows institutional users to lend and borrow stablecoins using OUSG as collateral.
Ondo Token Bridge and Converter
Ondo operates its own bridge enabling users to easily move Ondo tokens between different blockchains. The Ondo token converter also offers a swapping service to facilitate conversions of mUSD, which is the currency used to distributed USDY yield, and USDY itself.
How is ONDO used?
The ONDO token is the governance token of the ONDO DAO, and is used to vote on protocol matters like economic parameters, smart contract upgrades, or matters relating to the management of the DAO itself.
The ONDO token has a maximum supply of ten billion. There is no scheduled or planned inflation. Instead, tokens are allocated to different groups or purposes on a proportionate basis and vested over time.
The initial unlocked supply started at 1.4 billion, with the majority allocated to the token sale for fundraising purposes. For future releases, the segments allocated to ecosystem growth and protocol development will increase incrementally with each unlocking event.
ONDO benefited from an initial release onto the market in January 2024, coinciding with the crypto bull market triggered by the US Bitcoin ETF approvals. In March 2024, it surpassed a market cap of $1 billion.
Ondo Finance essentials
- Ondo Finance is a DeFi platform enabling users to trade tokenized versions of real-world securities in a regulated environment.
- The project started in 2021 and, having launched its first products in 2023 at a time when interest in RWAs was on the rise, has gained significant traction since.
- The project’s two main products are currently USDY, a general-access token offering stablecoin yields, and OUSG, an institutional-grade investment backed by Blackrock’s new tokenized BUIDL fund.