RWA Track - Perspectives on Ondo Finance

Background

As the

cryptocurrency

market enters a bearish phase, there has been a decline in income for Defi protocols. Market values of dollar-pegged stablecoins like USDT, USDC, and BUSD, which are backed by the US dollar, have been continuously decreasing. Investors' preferences have shifted from high-risk returns to low-risk or risk-free returns.

Against this backdrop, Real World Assets (RWA), as a subset of Defi protocols, facilitate blockchain users' easier access to the real economy through blockchain technology. Within the realm of RWA projects, one direction involves tokenizing US government bonds, bonds, and cash equivalents. This is also the service that Ondo Finance aims to provide for blockchain users.

Introduction

Ondo Finance is a blockchain service company that creates and manages institutional-grade financial products such as US government bonds and money market funds, and builds DeFi protocols around these products. Ondo is committed to developing decentralized and composable protocols, providing tailored services to meet the needs of organizations, DAOs, and high-net-worth individuals. The platform aims to bridge the gap between Traditional Finance (TradFi) and DeFi by introducing Real World Assets (RWAs) into the DeFi ecosystem.

Founded in 2021 by Nathan Allman, Ondo Finance, team members have extensive backgrounds in various institutions and protocols including Goldman Sachs, Fortress, Bridgewater, and MakerDAO. Currently, Ondo Finance has successfully completed seed and Series A funding rounds, raising a total of $24 million. Investors include Pantera Capital, Founders Fund, Coinbase Ventures, and Tiger Global, among others.

Currently, Ondo Finance offers four products for tokenizing real-world assets: OUSG, OMMF, OSTB, and OHYG. Additionally, the team has developed a DeFi lending protocol named FLUX, which has been sold to the Neptune Foundation.

The four products, OUSG, OMMF, OSTB, and OHYG, are income-generating funds with different investment portfolios, provided by Ondo Finance. Investors have the opportunity to purchase low-risk shares using USDC and gain varying levels of returns from these products.

OUSDG: Ondo Short-Term US Government Bond Fund, the majority of this portfolio will be invested in the iShares Short-Term Treasury Bond ETF, with a small portion of USDC and USD used for liquidity purposes. The iShares Short-Term Treasury Bond ETF aims to track the investment results of an index composed of US Treasury bonds with remaining maturities of one year or less.

OMMF: Ondo US Money Market Fund, the majority of this portfolio will utilize MMF (US government money market funds), with a small portion of USD and USDC used for liquidity purposes.

OSTB: Ondo Short-Term Investment Grade Bond Fund, the majority of this portfolio will belong to the PIMCO Enhanced Short Maturity Active ETF, with a small portion of USDC and USD used for liquidity purposes. This ETF primarily invests in short-term investment-grade debt securities, with an average portfolio duration typically not exceeding one year.

OHYG: Ondo High Yield Corporate Bond Fund, provides investors with high income by investing in a broad range of US high-yield corporate bonds. The majority of this portfolio will be invested in the iBoxx High Yield Corporate Bond ETF, with a small portion of USDC and USD used for liquidity purposes.

The four mentioned products offer investors varying yields along with different levels of risk. Typically, US Treasury bonds are considered risk-free assets, meaning that the underlying assets of OUSDG possess risk-free characteristics. Building upon this, OUSDG can serve as collateral for lending within the FLUX platform.

Ondo Finance collaborates with trusted third-party service providers and utilizes a fund structure to achieve a complete end-to-end process for its operations.

ONDO is

the protocol token

issued by Ondo Finance, with a total supply of 10 billion. It is distributed according to the following proportions:

Reflections and Perspectives

About RWA

RWA enables the tokenization of real-world assets, leveraging the characteristics of blockchain technology. In comparison to traditional finance, blockchain-based finance offers greater openness, allowing traditional assets to reach a broader range of investors. For blockchain users, this expands the range of investment opportunities available.

However, there are factors that limit the development of RWA during the tokenization process. Transparency, compliance, and the types of assets being tokenized are crucial considerations. Factors such as whether compliant institutions are involved in custody and redemption, and the establishment of standards for tokenizing different types of assets, all pose challenges that the RWA protocol needs to address.

About Ondo Finance

Ondo Finance offers tokenized financial products with varying levels of risk and returns, enabling more investors to access assets like US government bonds or bonds through blockchain. Stablecoins like USDT and USDC, which are backed 1:1 by the US dollar, have companies like Tether and Circle allocating a portion of their holdings to short-term US government bonds (or other assets), while maintaining liquidity in banks to meet user redemptions. Ondo Finance's OUSDG effectively returns the yield rights of users holding US dollars.

However, as a yield-bearing token, OUSDG lacks price anchoring and thus cannot be extensively used as a trading pair. It requires more lending protocols similar to FLUX to unlock its liquidity.

ViewsRWA is a track worthy of long-term attention, and Ondo Finance is also a project worth monitoring closely over time. The development of RWA involves various factors including legal permissions, institutional support, and user acceptance. Its progress might be relatively gradual. However, with the increasing demand from cryptocurrency investors and the growth of Defi protocols supporting RWA products like Ondo Finance, the RWA sector could potentially experience a significant surge at some point in the future.