Beyond U.S. Treasuries RWA, Ondo Finance Needs More

With the unsustainability of high APY projects in the bear market and the severe shrinkage of TVL in the DeFi field, the RWA narrative led by MakerDAO has gradually begun, and the market has focused its attention on real-world assets. Especially U.S. debt, an asset with no/low risk, stable interest-earning, and scalability.

Ondo Finance is the leading RWA project that grew up under this background. Recently, after the Ondo Foundation announced that it would unlock the circulation of ONDO Token on the 18th, Coinbase officially announced that Ondo Finance (ONDO) would be included in the currency listing roadmap. This decision of the Ondo Foundation will bring more incentives and liquidity to the Ondo Finance ecosystem.

Although Ondo Finance was mentioned earlier in another article, this is a good opportunity to summarize the overview of Ondo Finance, a leading RWA project.

1. Introduction to Ondo Finance

Ondo Finance is a The RWA tokenized investment protocol launched Ondo v2’s tokenized U.S. bond fund in January 2023 and is committed to providing institutional-level investment opportunities for everyone. Ondo brings no/low risk, stable interest-earning, scalable fund products (such as U.S. Treasury bonds, money market funds, etc.) to the chain, providing investors on the chain with an alternative to stablecoins and making it easier to hold The investor, rather than the issuer, earns most of the income from the underlying asset.

According to data from RWA.XYZ, excluding MakerDAO’s RWA U.S. debt volume of over 2 billion U.S. dollars, Ondo’s RWA U.S. debt market size has reached 125 million U.S. dollars, ranking third in the market. It is second only to Franklin OnChain U.S. Government Money Fund and Mountain Protocol.

（rwa.xyz）

2. Ondo Finance’s Tokenized Products

Ondo tokenizes funds The $OUSG tokenized U.S. debt and $OMMF tokenized money market fund products were launched, allowing stablecoin holders to invest in bonds and U.S. Treasury bonds. Investors will receive equity certificates in the tokenized funds, and Ondo will charge 0.15% per year. management fees.

Since then, Ondo launched a tokenized bill project guaranteed by short-term U.S. Treasury bonds and bank demand deposits in August 2023-$USDY interest-bearing stable currency . Compared with traditional stablecoins, the innovation of USDY is that it provides global investors with an investment method that can not only store U.S. dollar-denominated value but also generate U.S. dollar income from it without permission.

In addition, due to regulatory compliance reasons, tokenized fund products are only available to KYC-licensed customers. Ondo has cooperated with the back-end DeFi protocol Flux Finance to provide stablecoin mortgage lending services for tokens such as $OUSG that require permissioned investment, enabling permissionless participation in the back-end of the protocol.

（ondo.finance/）

2.1 Interest-bearing stable currency $USDY

$USDY is a U.S. dollar interest-earning product for non-U.S. residents and institutions. The underlying assets are short-term U.S. Treasury bonds and bank demand deposits. Investment Investors need to pass KYC before entering and can obtain U.S. bond income on a U-standard basis. The current TVL reaches US$65.37 million.

Implementation path: $USDY is issued separately by Ondo USDY LLC. Ondo USDY LLC is a bankruptcy-isolated independent SPV that uses its assets/equities as collateral to issue $USDY. , and designate the $USDY holder as the ultimate beneficiary through a trust.

2.2 Tokenized U.S. Bond Fund $OUSG

$OUSG is a tokenized U.S. bond fund for global institutional users. The underlying asset is the BlackRock iShares Short Tearsury Bond ETF. Investors need to pass KYC before they can enter. The current TVL reaches US$114 million.

Implementation path: $OUSG is issued by Ondo Tokenization Fund, investors invest in USDC as LP, and Ondo Tokenization Fund withdraws funds to Clear Street through Coinbase. With legal currency custody and Clear Street acting as a broker to purchase ETFs, new earnings will be re-invested, thus automatically generating higher compound interest rates.

2.3 Tokenized Money Market Fund $OMMF

$OMMF is a U.S. dollar-pegged money market fund with relatively lower risk. No further information is available. But what you can imagine is this: This is a tokenized SEC-compliant money market fund based on the rebase model.

Path of implementation: Just like Compound founder Robert Leshner’s new company Superstate, it sets up SEC-compliant funds to invest in short-term U.S. Treasury bonds and pass them on the chain. (Ethereum) to handle the fund’s transactions and records, tracking the fund’s ownership shares, which will allow investors to obtain a record of your ownership of this mutual fund in traditional financial products, just like holding stablecoins As well as other crypto assets.

The following is a comparison of three tokenized products:

（docs.ondo.finance/general-access-products/usdy/comparison-ondo-products）

2.4 Flux Finance Solving the problem of unlicensed investment

Flux finance is a set of decentralized lending protocols made by the Ondo team based on Compound V2. The protocol is basically similar to Compound’s.

Since Ondo’s front-end products require licensing KYC access, Ondo has cooperated with the DeFi protocol Flux Finance on the back-end to provide licensing-based investment agents such as OUSG. The currency provides USDC, USDT, DAI, and FRAX mortgage lending services. The other side of the lending protocol is permissionless and any DeFi user can participate.

According to data from DeFiLlama, as of January 18, Ondo’s TVL was US$179 million, and its lending agreement Flux Finance’s TVL reached US$24.32 million, with the borrowing amount to $14.11 million.

3. Ondo Finance’s Listing Road

3.1 Funding

Ondo was founded in 2021 by two former Goldman Sachs employees. The founder, Pinku Surana, was once a vice president of Goldman Sachs’ technology team. Led Goldman Sachs’ blockchain R&D team, whose team members have extensive backgrounds in various institutions and protocols such as Goldman Sachs, Fortress, Bridgewater and MakerDAO.

In August 2021, Ondo completed a $4 million Seed round of financing, which was led by Pantera Capital and included Genesis, Digital Currency Group, CMS Holdings, and CoinFund and Divergence Ventures, among others. In addition, angel investors such as Stani Kulechov (Founder of Aave), Richard Ma (Founder of Quantstamp) and Christy Choi (Former Investment Director of Binance) also participated in this round.

In April 2022, Ondo completed a $20 million Series A round of financing. The round was co-led by Founders Fund and Pantera Capital, with participation from Coinbase Ventures, Tiger Global, GoldenTree Asset Management, Wintermute, Flow Traders and Steel Perlot.

（icoanalytics.org/projects/ondo-finance/?）

On May 12, 2022, Ondo completed ICO financing of more than US$10 million through the CoinList platform, with the number of tokens accounting for 2% of the total, of which (1) 3 million ONDO were sold at a price of $0.03, with a lock-up period of 1 year and unlocking It will be released linearly within 18 months; (2) 17 million ONDO will be sold at a price of $0.055, with a lock-up period of 1 year, and will be released linearly within 6 months after unlocking.

（icoanalytics.org/projects/ondo-finance/?）

3.2 Tokenomics

According to the proposal of the Ondo Foundation: the total supply of ONDO is 10 billion, and the initial circulation is 1,426,647,567 (~ 14.3%), more than 85% of ONDO tokens will still be locked, and the locked tokens will be unlocked 12, 24, 36, 48 and 60 months after the initial tokens are unlocked.

Private investors (excluding CoinList round investors) and core contributors will be locked in for at least 12 months and for the next four years ( be released within a total of five years); participants in the CoinList investor round (2%) will be fully unlocked, so their tokens represent a large portion of the initial circulating supply.

Token allocation is: CoinList round investors (2%), ecological incentives (52.1%), protocol development (33%), private equity investors ( 12.9%).

（https://forum.fluxfinance.com/t/fip-08-release-of-the-ondo-token-lock-up/563/9）

4. Summary

Team Background: The elite characteristics of the Ondo project team, as well as the endorsement of top-level capital, support Ondo’s position in the RWA US Treasury field. The project’s compliance is well in place, after multiple rounds of audits, and the $USDY trading architecture is derived from the mature architecture of MakerDAO. Compared to some projects with only one page of solid product description.

Track: Ondo’s early direct entry into RWA US Treasury can be said to have unique vision. US Treasury, as a risk-free/low-risk, stable-yielding, and scalable asset, is currently the biggest beneficiary in the RWA race, and there is unlimited imagination behind it. This makes it smoother than MakerDAO and Centrifuge, which were initially engaged in credit asset RWA and later switched to US Treasury RWA.

Challenges: On the one hand, there is homogeneous competition from peers, such as Mountain Protocol, a yield-stablecoin project launched on September 11, 2023, which has surpassed Ondo in TVL in just 4 months. Additionally, Centrifuge has also partnered with protocols such as Aave and Frax Finance through the Anemoy Liquid Treasury Fund, a tokenized US Treasury fund. On the other hand, there is the challenge of having a single product. The threshold for US Treasury RWA products and yield-stablecoin products is not high. It is worth looking forward to how to expand more channels or launch more attractive products.

Of course, it is also worth looking forward to whether teams and investors with longer unlocking periods can adopt token incentives to create a growth flywheel.

Beyond U.S. Treasuries RWA, Ondo Finance needs more.

(The End)

This article is for study and reference only. I hope it will be helpful to you. It does not constitute any legal or investment advice. Not your lawyer，DYOR.

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