In today's financial markets, one of the challenges of tokenizing real world assets (RWA) is liquidity. For years, the RWA space has primarily focused on tokenizing illiquid assets, such as newly originated private credit, which are often difficult to price and lack the deep liquidity of secondary markets. This prevents them from being good collateral for protocols such as on-chain lending or derivatives.
The birth of OUSG
About a year ago, we launched OUSG, the world’s first tokenized U.S. Treasury bond product. This product was launched based on the belief that the RWA space should focus on tokenizing assets with deep existing liquidity, as these assets make better collateral in decentralized finance (DeFi). Following the success of OUSG, we also developed Flux Finance, a lending protocol that supports OUSG collateral, demonstrating its utility. Flux Finance is effectively an implementation of the U.S. Treasury repo market that is autonomous, global, transparent, and accessible to all stablecoin holders.
With the success of OUSG and Flux, our total assets have exceeded $200 million. Our expansion is not limited to US Treasuries, but also includes other forms of tokenized US Treasuries such as OMMF (tokenization of money market funds) and USDY (a yield alternative to traditional stablecoins).
future outlook
According to BCG’s predictions, US$16 trillion of various financial assets will be put on the blockchain in the next ten years. Many people are starting to think about what assets we should be focusing on besides cash equivalents. Ondo Global Markets will redefine the concept of tokenization in this context. We don’t believe that the tokenization model we pioneered with OUSG is best suited for bringing most other assets on-chain.
Issues with status quo tokenization: For example, OUSG tokens represent ownership of a new fund we have established, Ondo I LP, which invests in the iShares Short Treasury Bond ETF (SHV). The problem with this approach is that liquidity is fragmented. While OUSG holders can redeem at any time, they cannot sell OUSG to SHV bidders on Nasdaq during market hours. Slow settlement times in traditional finance exacerbate the problem.
For cash equivalents like OUSG and USDY looking to replace stablecoins, we think the cost is worth it. Stablecoins show clear market demand and are capable of trading around the clock. However, for most financial assets there is little significant demand to be traded or settled around the clock, so the cost of recreating liquidity is essentially the same as the liquidity of the assets backing them.
Introduction to Ondo Global Markets
Ondo Global Markets (Ondo GM for short) will provide on-chain investors and protocol developers native access to liquidity in traditional securities and related exchanges. Ondo GM is a platform that includes a broker-dealer with accounts in traditional trading, clearing and settlement venues and accepts customer orders through APIs and web applications.
Sample Workflow: Let us use an example to better understand the operation of Ondo GM. Suppose Alice is a customer of Ondo GM and she wishes to purchase Tesla (TSLA) stock. Alice can fund her account with stablecoins or fiat currencies and then instruct Ondo GM to purchase TSLA via a smart contract call, API, or web application. Ondo GM will immediately purchase TSLA on Nasdaq and hold the shares in an account with its broker-dealer. In return, Alice will receive TSLA tokens (tTSLA), with transfer restrictions limited to addresses associated with other Ondo GM customers.
Alice can send her tTSLA tokens to a client who is also an Ondo GM, and Ondo GM will observe the token transfer and treat it as an authoritative settlement instruction to initiate a stock transfer within the broker-dealer.
Command Tokenization
Importantly, tTSLA does not represent a unique financial asset with different liquidity needs than Ondo GM's holdings of TSLA stock. Rather, the tTSLA represents the rights to the TSLA held by the Ondo GM broker-dealer and the ability to direct the broker-dealer to make transactions, settlements or other instructions. We call this “command tokenization.”
Under this new model, blockchain is not just a storage tool for assets, but has become a messaging system between centralized and regulated enterprises. This innovation will enable on-chain investors to trade more efficiently and gain greater flexibility in traditional financial markets.
Summarize
The birth of Ondo Global Markets marks a new era in the tokenization of securities. By tokenizing existing liquid assets and leveraging smart contracts to facilitate trading and settlement, we can not only increase market liquidity but also provide investors with a more convenient trading experience. As the trend of more financial assets being put on the blockchain accelerates, Ondo GM will play an important role in this change and provide new opportunities for investors and developers.