Ondo Finance: A New Star in the RWA Field

As the cryptocurrency market enters a bear market, the unsustainability of high-yield projects and the significant reduction in the total locked value in the DeFi sector have led to the gradual rise of the narrative around real-world assets (RWA), led by MakerDAO. The market is shifting its focus to real economy assets, particularly U.S. Treasury bonds, which are low-risk, provide stable returns, and can be applied on a large scale.

In this context, Ondo Finance has rapidly emerged as a leading project in the RWA field. Recently, the Ondo Foundation announced that it will unlock the circulation of ONDO tokens on the 18th, and shortly after, a well-known trading platform announced that it will include Ondo Finance(ONDO) in its listing plan. This decision is expected to bring more incentives and liquidity to the Ondo Finance ecosystem.

1. Overview of Ondo Finance

Ondo Finance is a protocol focused on RWA tokenized investments. In January 2023, Ondo launched the v2 version of the tokenized U.S. Treasury fund, aimed at providing institutional-level investment opportunities to a wide range of investors. Ondo brings low-risk, stable-return, scalable fund products ( such as U.S. Treasuries, money market funds, etc. ) into the blockchain, offering on-chain investors an alternative to stablecoins, allowing holders rather than issuers to earn most of the returns generated by the underlying assets.

According to a certain data platform, the total market value of the RWA US Treasury bond sector has surged from an early $110 million to the current $863 million. Ondo's market size in the RWA US Treasury bond field reaches $125 million, ranking third in the market, behind only two well-known funds.

2. Tokenized Products of Ondo Finance

Ondo has launched the $OUSG tokenized US Treasury and $OMMF tokenized money market fund products through fund tokenization, allowing stablecoin holders to invest in bonds and US Treasury securities. Investors receive a tokenized fund equity certificate, and Ondo charges an annual management fee of 0.15%.

In August 2023, Ondo launched a tokenized note project backed by short-term U.S. Treasury bonds and bank demand deposits - the $USDY yield-bearing stablecoin. The innovation of USDY lies in providing a globally accessible investment tool that can store dollar-denominated value while generating dollar returns without the need for permission.

Due to regulatory compliance requirements, tokenized fund products are only available to clients who have passed KYC. To this end, Ondo has partnered with the DeFi protocol Flux Finance to provide stablecoin collateralized lending services for tokens such as $OUSG that require licensed investment, enabling permissionless participation on the back end of the protocol.

2.1 Yield Stablecoin $USDY

$USDY is a dollar interest product aimed at non-U.S. residents and institutions, with the underlying assets being short-term U.S. Treasury bonds and bank demand deposits. Investors must participate after KYC and can earn Treasury bond yields based on the U denomination. The current TVL is $65.37 million.

$USDY is independently issued by Ondo USDY LLC, which is a bankruptcy-remote independent SPV that issues $USDY collateralized by its assets/equity and designates $USDY holders as the ultimate beneficiaries through a trust.

2.2 Tokenized US Treasury Fund $OUSG

$OUSG is a tokenized US treasury fund aimed at global institutional users, with the underlying asset being a well-known short-term treasury ETF. Investors must undergo KYC to participate, and the current TVL is $114 million.

$OUSG is issued by the Ondo tokenized fund. Investors contribute USDC as LP, and the Ondo tokenized fund cashes out to Clear Street for fiat custody through a certain cryptocurrency exchange platform, with Clear Street acting as the broker to purchase ETFs. New earnings will be reinvested, thereby automatically generating a higher compound interest rate.

2.3 Tokenized Money Market Fund $OMMF

$OMMF is a currency market fund pegged to the US dollar, with relatively low risk. This could be a SEC compliant currency market fund that is tokenized based on a rebase model.

2.4 Flux Finance addresses the issue of permissionless investment.

Flux Finance is a decentralized lending protocol developed by the Ondo team based on an open-source lending protocol. Since Ondo's front-end products require KYC access, Ondo has partnered with Flux Finance on the back-end to provide USDC, USDT, DAI, and FRAX collateralized lending services for tokens that require licensable investment such as OUSG. The other end of the lending protocol is permissionless and any DeFi user can participate.

As of January 18, Ondo's TVL was $179 million, with the TVL of its lending protocol Flux Finance reaching $24.32 million and the loan amount reaching $14.11 million.

III. The Development History of Ondo Finance

3.1 Financing Situation

Ondo was founded in 2021 by two former employees of a well-known investment bank. The founder, Pinku Surana, was the Vice President of the technology team at the bank, leading the blockchain R&D team. Team members have extensive experience in several well-known financial institutions and protocols.

In August 2021, Ondo completed a $4 million seed round financing, led by a well-known crypto investment firm, with participation from several other notable institutions. Additionally, several industry-renowned individuals also took part in this round of financing.

In April 2022, Ondo completed a $20 million Series A financing round, led by two well-known investment institutions, with participation from several other reputable organizations.

On May 12, 2022, Ondo completed an ICO financing of over 10 million USD through a token issuance platform, with the token quantity accounting for 2% of the total.

3.2 Token Economy

The total supply of ONDO is 10 billion tokens, with an initial circulation of approximately 14.3%. Over 85% of ONDO tokens are still locked and will be gradually unlocked after the initial unlocking at 12, 24, 36, 48, and 60 months.

Private investors ( excluding the ICO round ) and core contributors' tokens will be locked for at least 12 months and released over the following 4 years. The tokens of ICO round participants will be fully unlocked, accounting for a significant portion of the initial circulating supply.

Token allocation is as follows: ICO round investors ( 2% ), ecological incentives ( 52.1% ), protocol development ( 33% ), private placement investors ( 12.9% ).

4. Summary and Outlook

The Ondo project team has an excellent background and has received support from top-tier capital, occupying an important position in the RWA US Treasury bond sector. The project's compliance is relatively good, having undergone multiple rounds of audits, and the trading structure of $USDY draws on mature models. Ondo entered the RWA US Treasury bond market early, seizing the opportunity of this low-risk, stable return, and scalable asset.

However, Ondo also faces challenges: on one hand, there is homogeneous competition from peers, such as a certain yield-bearing stablecoin project that surpassed Ondo's TVL in a short period; on the other hand, the product offering is relatively limited, with only U.S. Treasury RWA products and yield-bearing stablecoin products having low thresholds, making it worth paying attention to how to expand more channels or launch more attractive products.

In addition, it is worth looking forward to whether the team and investors can use token incentives to create a growth flywheel. Besides US Treasury RWA, Ondo also needs to explore more areas to maintain competitiveness.