Ondo Finance: The Rise of a New Star in the RWA Field

As the unsustainability of high-yield projects in the bear market becomes more apparent, and the total locked value in the DeFi space significantly declines, the narrative of real-world assets (RWA) led by MakerDAO is gradually gaining attention. The market is shifting its focus towards real-world assets, particularly low-risk, stable-yield assets that can be applied on a large scale, such as U.S. Treasury bonds.

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, followed by a well-known trading platform announcing the inclusion of Ondo Finance (ONDO) in its listing roadmap. This decision is expected to bring more incentives and liquidity to the Ondo Finance ecosystem.

Overview of Ondo Finance

Ondo Finance is a protocol focused on RWA tokenized investments, launching the Ondo v2 tokenized U.S. Treasury Fund in January 2023. The project aims to provide institutional-level investment opportunities to a wide range of investors, bringing low-risk, stable-return, scalable fund products (such as U.S. Treasuries, money market funds, etc.) into the blockchain world, offering on-chain investors an alternative to stablecoins, allowing holders rather than issuers to obtain most of the returns from the underlying assets.

According to statistics from a certain data platform, the total market value of the RWA US Treasury bond sector has rapidly grown from an early $110 million to the current $863 million. Among them, Ondo's market size in the RWA US Treasury bond field has reached $125 million, ranking third in the market, just behind two well-known protocols.

Tokenized Products of Ondo Finance

Ondo has launched $OUSG tokenized US Treasury bonds and $OMMF tokenized money market fund products by tokenizing funds, allowing stablecoin holders to invest in bonds and US Treasury bonds. Investors will receive a certificate of rights for the tokenized funds, 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 bills and bank demand deposits - the $USDY interest-bearing stablecoin. The innovation of USDY lies in its ability to provide a permissionless investment tool for global investors that can both store value denominated in U.S. dollars and generate dollar returns.

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

Stablecoin $USDY

$USDY is a dollar income product aimed at non-U.S. residents and institutions, with underlying assets consisting of short-term U.S. Treasury bonds and bank demand deposits. Investors must complete KYC before participating, and can obtain U.S. Treasury bond yields while maintaining a dollar basis. The current TVL has reached $65.37 million.

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

Tokenized US Treasury Fund $OUSG

$OUSG is a tokenized US Treasury fund aimed at global institutional users, with the underlying assets being a short-term government bond ETF from a well-known asset management company. Investors can participate only after completing KYC, and the current TVL has reached $114 million.

$OUSG is issued by the Ondo Tokenized Fund. Investors contribute USDC as LPs, and the Ondo Tokenized Fund withdraws to Clear Street for fiat custody through a trading platform, with Clear Street acting as the broker to purchase ETFs. New earnings will be reinvested automatically, thereby generating a higher compound interest rate.

tokenized currency market fund $OMMF

$OMMF is a currency market fund pegged to the US dollar, with relatively low risk. Although information is currently limited, it can be inferred that this is a SEC-compliant currency market fund that has been tokenized based on a rebase model.

Flux Finance addresses the issue of permissionless investment.

Flux Finance is a decentralized lending platform developed by the Ondo team based on a certain lending protocol. Since Ondo's front-end products require KYC access, Ondo collaborates with Flux Finance on the back-end to provide collateralized lending services for tokens like OUSG that require permissioned investment, using USDC, USDT, DAI, and FRAX. The other end of the lending protocol is permissionless, allowing any DeFi user to participate.

As of January 18, Ondo's TVL is $179 million, its lending protocol Flux Finance's TVL reaches $24.32 million, and the borrowing amount is $14.11 million.

The Development History of Ondo Finance

Financing History

Ondo was founded in 2021 by two former employees of a renowned investment bank. The founder, Pinku Surana, was the vice president of the bank's technology team and led the blockchain research and development 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 venture capital firm, with participation from several other renowned investment institutions. In addition, several industry leaders also participated in the angel investment.

In April 2022, Ondo completed a $20 million Series A financing, led by two well-known venture capital firms, with participation from several other prominent institutions.

On May 12, 2022, Ondo completed an ICO funding of over $10 million through a certain platform, with the number of tokens accounting for 2% of the total.

Token Economics

According to the proposal from the Ondo Foundation: the total supply of ONDO is 10 billion tokens, with an initial circulation of approximately 14.3%. More than 85% of the ONDO tokens will be locked and will be released in batches after 12, 24, 36, 48, and 60 months following the initial token unlock.

Tokens of private investors (excluding certain platform round investors) and core contributors will be locked for at least 12 months and will be gradually released over the next four years. Tokens of certain platform round investors (2%) will be fully unlocked, accounting for a large portion of the initial circulating supply.

The token allocation is as follows: platform round investors (2%), ecological incentives (52.1%), protocol development (33%), private investors (12.9%).

Summary

Ondo Finance's success in the RWA U.S. Treasury sector is attributed to its elite team background and top-tier capital support. The project emphasizes compliance, having undergone multiple rounds of audits, and its product architecture is mature and reliable. However, Ondo also faces competitive pressure from peers and challenges related to product singularity. In the future, Ondo needs to expand more channels, launch more attractive products, and utilize token incentives to create a growth flywheel to maintain its leading position in the RWA sector.