Ondo’s early and direct entry into the RWA US Treasury market can be considered a unique and insightful move. US Treasury, as a low-risk, stable-yielding, and scalable asset, is currently the biggest beneficiary in the RWA arena and offers unlimited potential.
(Background: 2024 Crypto Startup Trends: RWA, DePIN, Infrastructure…)
Table of Contents
1. Introduction to Ondo Finance
2. Tokenized Products of Ondo Finance
2.1 Interest-Bearing Stablecoin $USDY
2.2 Tokenized US Treasury Fund $OUSG
2.3 Tokenized Money Market Fund $OMMF
2.4 Flux Finance Solves Unauthorized Investment Issues
3. The Listing Journey of Ondo Finance
3.1 Financing
3.2 Token Economy
4. Conclusion
With the unsustainability of high APY programs in the bear market and the significant shrinkage of TVL in the DeFi space, the RWA narrative led by MakerDAO has gradually opened up, shifting market focus to real-world assets, particularly the US Treasury, which is a low-risk, stable-yielding, and scalable asset.
Ondo Finance is a top-tier RWA project that has flourished in this context. Recently, after the Ondo Foundation announced the unlocking of ONDO tokens on the 18th, Coinbase announced the inclusion of Ondo Finance (ONDO) in its listing roadmap. This decision by the Ondo Foundation will bring more incentives and liquidity to the Ondo Finance ecosystem.
Although Ondo Finance has been mentioned in previous articles, this is an opportunity to summarize the overview of this top-tier RWA project.
Ondo Finance is an RWA tokenization investment protocol that launched its tokenized US Treasury fund, Ondo v2, in January 2023. It aims to provide institutional-grade investment opportunities to everyone. Ondo brings low-risk, stable-yielding, and scalable fund products (such as US Treasury bonds and money market funds) onto the blockchain, offering an alternative stablecoin option for blockchain investors and allowing holders, rather than issuers, to earn the majority of the underlying assets’ benefits.
According to data from RWA.XYZ, the total market value of the RWA US Treasury track has surged from $110 million earlier to $863 million today (not including MakerDAO’s RWA US Treasury volume of over $2 billion). Among them, Ondo’s market size in the RWA US Treasury sector has reached $125 million, ranking third in the market, only behind Franklin OnChain US Government Money Fund and Mountain Protocol.
Ondo has introduced tokenized US Treasury and tokenized money market fund products through the tokenization of funds. These products, $OUSG and $OMMF, allow stablecoin holders to invest in bonds and US Treasury, and investors will receive equity certificates of the tokenized funds. Ondo will charge an annual management fee of 0.15%.
Subsequently, in August 2023, Ondo launched $USDY, an interest-bearing stablecoin backed by short-term US Treasury and bank deposits. In comparison to traditional stablecoins, USDY innovatively provides a means for global investors to store the value of the US dollar and generate USD returns from it, without requiring permission.
Additionally, due to regulatory compliance reasons, tokenized fund products can only target KYC authorized clients. Ondo has collaborated with backend DeFi protocol Flux Finance to provide stablecoin collateralized lending services for tokens like $OUSG that require permissioned investments, achieving permissionless participation in the backend of the protocol.
2.1 Interest-Bearing Stablecoin $USDY
$USDY is a USD-yielding product for non-US residents and institutions. Its underlying assets include short-term US Treasury and bank deposits. Investors need to go through KYC to participate and can earn returns from US Treasury on a USD basis. Currently, TVL has reached $65.37 million.
Implementation Path: $USDY is issued by Ondo USDY LLC, an independent SPV that is bankruptcy-isolated. Ondo USDY LLC issues $USDY by mortgaging its assets/equity and designates $USDY holders as ultimate beneficiaries through a trust structure.
$OUSG is a tokenized US Treasury fund for global institutional users. Its underlying asset is the BlackRock iShares Short Treasury Bond ETF. Investors need to go through KYC to participate. Currently, TVL has reached $114 million.
Implementation Path: $OUSG is issued by Ondo Tokenized Fund. Investors provide liquidity in USDC as LPs. The Ondo Tokenized Fund cashes out through Coinbase and custody the fiat currency with Clear Street, which acts as a broker to purchase ETFs. New returns will be reinvested, automatically generating higher compounded returns.
$OMMF is a currency market fund pegged to the US dollar, with relatively lower risk. More information is currently unavailable. However, it can be imagined as an SEC-compliant tokenized currency market fund based on the rebase model.
Implementation Path: Similar to Superstate, a new company founded by Compound founder Robert Leshner, it invests in short-term US Treasury by establishing SEC-compliant funds and handles fund transactions and records on-chain (Ethereum). It tracks ownership shares of the fund, enabling investors to obtain ownership certificates of traditional financial products, just like holding stablecoins and other crypto assets.
The following is a comparison of the three tokenized products:
2.4 Flux Finance Solves Unauthorized Investment Issues
Flux Finance is a decentralized lending protocol developed by the Ondo team based on Compound V2. The protocol is similar to Compound in its basic structure.
Since Ondo’s front-end products require permissioned KYC access, Ondo has partnered with the DeFi protocol Flux Finance on the backend to provide collateralized lending services for tokens like $OUSG that require permissioned investments. The other end of the lending protocol is permissionless, allowing any DeFi user to participate.
According to data from DeFiLlama as of January 18th, Ondo’s TVL is $179 million, and the TVL of its lending protocol Flux Finance is $24.32 million, with borrowing amount reaching $14.11 million.
Ondo was founded in 2021 by two former Goldman Sachs employees. Co-founder Pinku Surana was previously Vice President of the Goldman Sachs technology team and led Goldman Sachs’ blockchain research and development team. The team members have rich backgrounds in various institutions and protocols, including Goldman Sachs, Fortress, Bridgewater, and MakerDAO.
In August 2021, Ondo completed a $4 million seed round, with Pantera Capital leading the round and participation from Genesis, Digital Currency Group, CMS Holdings, CoinFund, and Divergence Ventures. Angel investors such as Stani Kulechov (founder of Aave), Richard Ma (founder of Quantstamp), and Christy Choi (former investment manager at Binance) also participated in this round.
In April 2022, Ondo completed a $20 million Series A funding. This round was jointly led by Founders Fund and Pantera Capital, with participation from Coinbase Ventures, Tiger Global, GoldenTree Asset Management, Wintermute, Flow Traders, and Steel Perlot.
On May 12, 2022, Ondo completed an ICO funding of over $10 million through the CoinList platform, with the token quantity accounting for 2% of the total supply. The tokens were sold at a price of $0.03 for 3 million ONDO tokens, with a lock-up period of 1 year and linear release within 18 months after unlocking. Additionally, 17 million ONDO tokens were sold at a price of $0.055, with a lock-up period of 1 year and linear release within 6 months after unlocking.
3.2 Token Economy
According to the Ondo Foundation’s proposal, the total supply of ONDO tokens is 10 billion, with an initial circulating supply of 1,426,647,567 (~14.3%). Over 85% of ONDO tokens will still be locked, and the locked tokens will be unlocked at 12, 24, 36, 48, and 60 months after the initial token unlocking.
Private investors (excluding CoinList round investors) and core contributors will be locked for at least 12 months and released over the next four years (a total of five years). Participants in the CoinList round (2%) will be fully unlocked, and their tokens will account for a significant portion of the initial circulating supply.
Token distribution: CoinList round investors (2%), ecosystem incentives (52.1%), protocol development (33%), private investors (12.9%).
Team Background: The elite characteristics of the Ondo project team and the endorsement of top-tier capital support Ondo’s position in the RWA US Treasury field. The project’s compliance is well-established, undergoing multiple audits, and the transaction structure of $USDY is based on the mature framework of MakerDAO. It is more solid compared to some projects with only one-page product descriptions.
Track: Ondo’s early and direct entry into the RWA US Treasury market shows unique foresight. The US Treasury, as a low-risk, stable-yielding, and scalable asset, is currently the biggest beneficiary in the RWA field and offers unlimited potential. This is much smoother compared to MakerDAO and Centrifuge, which started with credit assets in the RWA realm before transitioning to US Treasury.
Challenges: On the one hand, there is homogeneous competition from peers, such as Mountain Protocol, a stablecoin project launched on September 11, 2023, whose TVL has already surpassed Ondo in just 4 months. Centrifuge has also partnered with protocols like Aave and Frax Finance through its tokenized US Treasury fund, Anemoy Liquid Treasury Fund. On the other hand, there is the challenge of a single product, with only US Treasury RWA products and interest-bearing stablecoin products. How to expand more channels or introduce more attractive products is worth looking forward to.
Of course, it is also worth looking forward to whether teams and investors with longer lock-up periods can create a growth flywheel through token incentives.
Besides US Treasury RWA, Ondo still needs more.
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