Everything you need to know about Ondo Finance, one of the biggest RWA projects in the world!
Bogdanslobodzean
Satoshi Club
Bogdanslobodzean
Tokenization of real-world assets (RWAs) is becoming more popular as institutions explore moving assets like stocks and funds on-chain. Tokenized RWAs offer benefits like extended trading hours, faster transactions, and improved liquidity.
Ondo Finance bridges decentralized finance (DeFi) and traditional markets by enabling the trading of tokenized securities backed by real-world assets like ETFs. Launched on Ethereum in early 2023, Ondo has gained significant traction, surpassing a $1 billion market cap and securing over $400 million in total value locked by mid-2024.
What is Ondo Finance?
Ondo Finance is a decentralized platform on the Ethereum blockchain that brings institutional-grade financial products to DeFi. It allows users to access products typically only available in traditional finance (TradFi), such as U.S. dollar yields and U.S. treasuries.
Ondo’s main products are USDY and OUSG. USDY provides U.S. dollar-based yields, while OUSG offers exposure to U.S. treasuries through an ETF managed by BlackRock. Ondo also launched Flux Finance, where users can lend and borrow stablecoins backed by tokenized U.S. treasuries.
Since Ondo deals with regulated assets, it must follow strict compliance rules, including know-your-customer (KYC) requirements. Some products are only available to accredited investors. This focus on regulation makes Ondo one of the lowest-risk yield-generating platforms in DeFi.
Users can connect their wallet, deposit USDC or wire USD, and receive tokens representing their investment. They can later redeem these tokens for stablecoins or USD. Coinbase handles the conversion process, ensuring security and reliability.
Ondo’s conservative approach to risk and compliance sets it apart in the DeFi space. Its strong partnerships with BlackRock and Coinbase reinforce its reputation for offering secure, regulated, and transparent access to real-world financial products on-chain.
How Does Ondo Finance Work?
Ondo Finance allows users to access traditional financial products like U.S. treasuries and dollar yields on the blockchain. By tokenizing these assets, Ondo combines the benefits of TradFi with the flexibility and efficiency of DeFi.
USDY: U.S. Dollar Yield
USDY is a token backed by short-term U.S. treasuries and bank deposits. It offers a stable yield of about 5.2%. To purchase USDY, users must complete KYC verification and confirm their wallet addresses. Funds can be deposited using USDT, USDC, or USD bank wire transfers over $100K.
Token certificates are issued immediately, allowing users to start earning interest while waiting for their USDY tokens. Once minted, USDY can be used for transfers, trades, or lending. Ankura Trust verifies the collateral and protects holders if Ondo ceases operations.
OUSG: U.S. Treasuries
OUSG exposes short-term U.S. treasuries through BlackRock’s tokenized fund, BUIDL. It offers 24/7 settlement, unlike traditional treasuries. Two versions exist: OUSG (increasing redemption price) and rOUSG (yield paid daily as additional tokens). Trading OUSG requires KYC, and U.S.-accredited investor status is needed.
Flux Finance
Flux Finance, launched by Ondo in 2023, allows permissionless lending and borrowing of stablecoins and OUSG. Traders can generate yield by lending OUSG or using it as collateral to borrow stablecoins. Flux Finance was sold to Neptune Foundation to let Ondo focus on RWA tokenization.
Token Bridge and Converter
Ondo’s token bridge allows cross-chain transfers of USDY between Ethereum and Mantle through partnerships with Axelar and LayerZero. The token converter lets users switch between OUSG and rOUSG without slippage.
Ondo Finance bridges the gap between traditional finance (TradFi) and decentralized finance (DeFi) by tokenizing real-world assets (RWAs) like U.S. treasuries. This allows traders to access secure, regulated financial products on-chain.
Benefits and Limitations of Ondo Finance
Ondo Finance bridges the gap between TradFi and DeFi by tokenizing RWAs like U.S. treasuries. This allows traders to access secure, regulated financial products on-chain.
Benefits
Access to institutional products: Ondo partners with BlackRock, providing trusted and secure financial products.
Fast settlement: Blockchain-based tokenization enables faster transaction settlement compared to traditional markets.
Regulatory compliance: Ondo prioritizes compliance and transparency, ensuring safer user experiences.
Stable yield: USDY is considered one of the lowest-risk stablecoin yields, currently around 5.2%.
Bridges TradFi and DeFi: TradFi traders gain blockchain benefits, while DeFi users access regulated products.
Limitations
Limited product range: As of mid-2024, Ondo only offers two major products — USDY and OUSG.
Strict KYC requirements: Users must complete identity verification, which may limit adoption.
Accredited investor restriction: OUSG is only available to accredited investors, excluding many potential users.
Token concentration: A large portion of ONDO’s supply is held by the team and investors, raising concerns about centralization.
ONDO Token
The ONDO token is the governance token of the ONDO DAO. It allows holders to vote on protocol matters like economic parameters, smart contract upgrades, and DAO management. ONDO has a fixed supply of 10 billion tokens with no planned inflation.
The initial unlocked supply started at 1.4 billion, mostly used for fundraising. Future releases will focus on ecosystem growth and protocol development. ONDO launched in January 2024 during a crypto bull market and surpassed a $1 billion market cap by March 2024. Its value reflects strong market interest and growth potential.
Closing Thoughts
Ondo Finance is bridging the gap between DeFi and TradFi by tokenizing RWAs. It provides access to safer yields and instant settlement, increasing accessibility to TradFi assets. While the project has made impressive progress, it’s important to remember that traditional finance moves at a slower pace than crypto.
However, Ondo Finance’s success shows that there’s growing interest in tokenizing RWAs. As the benefits of decentralization become clearer, projects like Ondo could drive faster change in the traditional financial space. Read more about other blockchain projects on our Medium page.
