In the context of today's rapid development of financial technology, tokenization is gradually becoming the future trend of the financial market. BlackRock CEO Larry Fink says tokenization will be the next evolution in finance, a view that could influence the attitudes of other major financial players. As Real World Assets (RWA) gradually emerge in the cryptocurrency industry, the market's interest in this innovative financial product is growing day by day. As of May 2024, the total value of the RWA market has exceeded US$6.6 billion and is expected to reach US$10 trillion in 2030. The main attraction of this emerging market is that it not only provides income opportunities for decentralized finance (DeFi), but also enhances liquidity through the fragmentation of assets, allowing all types of investors to participate.
Advantages of asset tokenization
The core of asset tokenization is to convert traditional financial assets, such as treasury bonds, stocks and real estate, into digital tokens. This process not only improves liquidity, but also provides more investment opportunities for investors with different capital levels. Through interoperable tokenized assets, small investors can invest in high-yielding assets with relatively low capital. Additionally, the public nature of blockchain increases transparency and enhances composability between real-world assets and the DeFi ecosystem.
According to Chainlink’s explanation, the way asset tokenization works can effectively connect real-world assets and digital financial markets. The market capitalization of U.S. tokenized government bonds is also growing, jumping from $114 million to $845 million in 2023, with Franklin Templeton becoming the largest issuer of this asset class, accounting for about 38% of the market .
Ondo Finance’s technological innovations
Amid this megatrend, Ondo Finance is well-positioned to attract an increasing number of investors with its treasury bond tokenization service. Through its decentralized protocol, Ondo uses blockchain technology to provide institutional-grade financial products and tokenize stable assets in traditional finance, thereby achieving a combination of reliability and blockchain efficiency.
Ondo Finance operates in two main divisions: Asset Management and Technology. The asset management department is responsible for creating and overseeing tokenized financial products, while the technology department focuses on developing the protocols that support these products. Currently, Ondo Finance offers two different investment options:
USDY (Ondo US Dollar Yield Token)
Tokenized notes backed by short-term U.S. Treasury securities and bank deposits.
It provides an annualized rate of return (APY) of 5.30% and a total lock-up volume (TVL) of US$315.35 million.
More secure and transparent than traditional stablecoins (such as USDT/USDC).
Managed by Ankura Trust Company to ensure compliance and investor protection.
OUSG (Ondo Short-term U.S. Treasury Note)
Offers low-risk, tokenized short-term U.S. Treasury securities to passive investors.
It provides an annualized rate of return (APY) of 4.81% and a total lock-in volume (TVL) of US$221.32 million.
Transfer of investment from BlackRock’s SHV to BUIDL in March 2024.
Ondo recently launched a new version of OUSG, called rOUSG, which provides investors with income through additional rOUSG tokens.
Decentralized Lending by Flux Finance: In addition to tokenized financial products, Ondo Finance also launched Flux Finance, an important development in decentralized lending. Flux Finance is based on Compound V2, but adds new features to support open tokens such as USDC and restricted tokens such as OUSG. Users are free to lend USDC, but borrowing using OUSG as collateral requires meeting specific licensing requirements to ensure compliance and security.
Flux adopts a peer-to-pool (p2pool) model similar to Compound, allowing users to borrow and lend in an over-collateralized manner. Lenders can earn interest on the stablecoins they provide, while borrowers can borrow stablecoins using collateral and subject to the asset’s licensing requirements. Flux Finance is governed by Ondo DAO, making the entire process more transparent and efficient.
Competitors and Market Position
As competition in the market intensifies, Ondo Finance is gradually emerging in the crypto RWA category. Despite facing pressure from rivals such as Centrifuge, Ethena, Maple Finance and Pendle, Ondo has further strengthened its market position by avoiding direct competition through partnerships with traditional financial giants such as BlackRock.
Ondo Finance’s innovative products, such as USDY and OUSG, offer safer and more transparent alternatives to traditional stablecoins, making them unique in the market. By integrating traditional finance with blockchain, Ondo targets the huge U.S. Treasury market and has broad market coverage.
ONDO Token Economics
The ONDO token is the governance token of Ondo Finance and its Flux Finance protocol, giving holders the right to vote on various proposals within the Ondo DAO, ensuring that all decisions are made transparently on-chain. The current price of the ONDO token is $1.87, ranking 54th in market capitalization, and the circulating supply is 1.44 billion ONDO, accounting for 14.27% of the total supply. The total supply of tokens is 10 billion ONDO, and the maximum supply is also 10 billion ONDO.
Token usage: The main purpose of ONDO tokens is governance, and holders can participate in the initiation and voting of proposals. To initiate a proposal, an individual must hold or be delegated voting rights of at least 100 million ONDO. It is unclear whether other uses will be introduced for ONDO holders in the future.
Team and Ecosystem
Ondo Finance’s team is made up of a diverse mix of people from both the traditional finance and Web3 worlds. Founder and CEO Nathan Allman and President and COO Justin Schmidt both come from Goldman Sachs, and the team also includes developers from BlackRock, OpenSea, MakerDAO and Boson Protocol. This combination of expertise is highly aligned with Ondo Finance’s unique vision and objectives.
Conclusion
Overall, Ondo Finance is reshaping the traditional financial market through its innovative tokenized financial products and decentralized lending platform. With the rise of asset tokenization and increasing market demand, Ondo will play an increasingly important role in the future financial ecosystem. Investors and market participants should pay close attention to developments in this area to seize potential investment opportunities.