1. Project Introduction:
1. Basic information of the project
Ondo Finance is a decentralized institutional-grade finance protocol that is committed to using blockchain technology to provide institutional-grade financial products and services and to build an open, permissionless, decentralized investment bank. Ondo's current core business is to introduce zero/low-risk, stable interest-bearing, scalable fund products (such as U.S. Treasury bonds, money market funds, etc.) to the blockchain, providing an alternative to stablecoins for on-chain investors and allowing holders rather than issuers to earn most of the income from the underlying assets.
2. Project development history
(1) March 2021: Company founded, focusing on DeFi
(2) August 2021: Seed round financing
(3) Second half of 2021: Launch of LaaS (Liquidity-as-a-Service) service
(4) April 2022: Series A financing
(5) May 2022: ICO financing
(6) January-February 2023: Abandon Vaults and LaaS and shift to RWA
(7) January 2024: ONDO tokens unlocked for circulation
3. Core Team Background
2. Main products:
Ondo Finance consists of two core departments: the first is the asset management department, which is responsible for developing and managing tokenized financial products; the second is the second department, which focuses on building decentralized financial protocols. Currently, Ondo's official website shows that it supports U.S. government bond fund products (OUSG) and U.S. money market fund products (OMMF), as well as the U.S. dollar yield token USDY, which is backed by tokenized notes guaranteed by short-term U.S. Treasury bonds and bank demand deposits.
1. Tokenized U.S. Treasury Bond Fund OUSG
OUSG is a tokenized U.S. Treasury fund that aims to provide a liquidity exposure to short-term U.S. Treasury bond ETFs. Global investors can use USDC or US dollars to purchase OUSG, with a minimum investment amount of 100,000 USDC. In terms of legal structure, OUSG is issued by Ondo I LP, a partnership registered in Delaware, USA, following a standard fund structure.
As of September 3, 2024, the total locked value (TVL) of OUSG is approximately US$212 million.
(1) Investment portfolio
The majority of the portfolio is currently held in the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with the remainder held in BlackRock's Federal Fund (TFDXX), bank deposits and USDC for liquidity purposes. The portfolio may include other U.S. Treasury funds and/or direct investments in U.S. Treasuries in the future.
The BlackRock USD Institutional Digital Liquidity Fund (BUIDL) aims to provide a stable value of $1 per token. The fund invests 100% of its total assets in cash, U.S. Treasury bills, and repurchase agreements, allowing investors to earn income while holding tokens on the blockchain.
(2) Rate of return and fees
As of September 3, 2024, OUSG offers an annualized yield (APY) of 5.27%. In terms of fees, Ondo charges 0 management fees until January 25; third-party service providers such as Nav Consulting charge a service fee of no more than 0.35%.
(3) Price trend
As of September 4, 2024, OUSG is priced at $107.82
2. Tokenized Money Market Fund OMMF
The upcoming OMMF is a tokenized money market fund that aims to provide a liquidity exposure to buy U.S. money market funds. Similar to OUSG, global investors can use USDC or US dollars to purchase OMMF, and the minimum investment amount is also 100,000 USDC.
(1) Investment portfolio
The majority of the portfolio will be invested in money market funds (MMFs), with a small portion of USDC and U.S. dollars held to maintain liquidity.
(2) Rate of return and fees
OMMF has not yet been issued, and the annualized percentage yield (APY) shown on its official website is 4.73%.
Future earnings will be airdropped to token holders in the form of new tokens every day, and OMMF tokens will always be purchased and redeemable at $1. Ondo has not yet announced the underlying MMF asset class.
In terms of fees: Ondo charges a management fee of 0.15%; service providers such as Nav Consulting charge a service fee of no more than 0.15% (this ratio will decrease as TVL increases); MMF management fees have not yet been announced.
3. Interest-bearing stablecoin USDY
USDY is a tokenized note secured by short-term U.S. Treasury bonds and demand bank deposits, available for purchase by non-U.S. individuals and institutional investors. Investors will receive a token certificate after making their investment, and will receive USDY in 40-50 days. After receiving USDY, investors can transfer it on the chain for free. In terms of legal structure, USDY is issued by Ondo USDY LLC, a bankruptcy-remote company, which can isolate Ondo's own operating risks to a certain extent.
As of September 3, 2024, the total locked value (TVL) of USDY is approximately US$329 million.
(1) Rate of return and fees
The annualized yield (APY) provided by USDY is adjusted monthly by Ondo based on actual conditions. As of September 3, 2024, the APY of USDY is 5.35%. The APY of the underlying assets (i.e., the portfolio of U.S. Treasury bonds and bank deposits) is approximately 5.21%, and the fee charged by Ondo is 0.
The following assets reflect the combined USDY TVL ($384.86 million) and equity buffer ($11.15 million). USDY is currently overcollateralized at 2.90%.
(2) Mortgage guarantee mechanism
USDY is issued by Ondo USDY LLC, an independent legal entity, and is managed by an independent board of directors. It has independent books and accounts, and its assets are isolated from those of Ondo Finance, Inc.
USDY is a senior debt secured by bank demand deposits and short-term U.S. Treasury bonds. Ondo overcollateralizes it and provides a 3% first loss position to absorb short-term fluctuations in U.S. Treasury prices. That is, for every $100 USDY issued, there is at least $103 worth of bank deposits and U.S. Treasury bonds as collateral. In addition, Ankura Trust, as a collateral agent, will also provide daily transparency reports containing detailed asset holdings.
3. Project Prospects
1. Track Overview
According to RWA.xyz data, the total market value of RWA U.S. Treasury bonds was nearly $2 billion as of September 3, 2024, while it was only $114 million on January 1, 2023, a 20-fold increase in just one and a half years.
Among them, Ondo's market size in RWA US Treasuries reached US$605 million, ranking first in the market, ahead of Securitize (US$507 million) and Franklin Templeton Benji Investments (US$427 million).
2. Competitors
（1）Franklin Templeton
Franklin Templeton, as a global asset management leader with more than 70 years of history and more than one trillion US dollars in assets under management, has shown great interest in the cryptocurrency field, and its Bitcoin ETF (EZBC) was approved by the U.S. Securities and Exchange Commission (SEC) in January this year.
In April 2021, Franklin Templeton launched the first U.S. registered government money market fund on the Stellar blockchain, the Franklin OnChain U.S. Government Money Fund (FOBXX). As one of the first funds to use public chains for transactions and share ownership records, FOBXX is strictly regulated by the U.S. Investment Company Act of 1940. It is one of the most compliant physical asset-backed token (RWA) products on the market and is also the largest product in the current RWA U.S. bond market.
More than 99% of FOBXX's asset allocation is invested in securities fully guaranteed by the U.S. government with an extremely high credit rating. The fund's shares are represented by "BENJI" tokens, which are valued at $1 and are primarily targeted at U.S. investors, including institutions and individuals. Through its Benji Investments App, FOBXX distributes the proceeds of U.S. Treasury bonds to BENJI token holders.
As of now, FOBXX's total assets have exceeded US$400 million, with an annualized rate of return of approximately 5.28%. From the perspectives of institutional background, product scale, market first-mover advantage and compliance, Franklin Templeton is undoubtedly a strong competitor of Ondo in the RWA US debt field.
（2）Securitize
The tokenized fund BUIDL is issued by BlackRock and Securitize based on Ethereum and is operated and managed by BlackRock Financial Management, Inc. BUIDL mainly invests in cash, U.S. Treasury bonds and repurchase agreements. Fund investors must meet the qualifications of "qualified investors". Investors will receive BUIDL tokens of equal value, and each BUIDL token is worth $1. The tokens will be transferred to other verified addresses by Securitize's crypto wallet, but investors transfer BUIDL tokens, and the recipients must meet their review conditions.
BUIDL is issued on Ethereum as an ERC20 token and supports real-time on-chain transfers within a whitelist. It supports interaction with smart contracts and provides real-time USDC redemption through Circle. As of September 3, 2024, BUIDL had $500 million in assets under management, held by 17 addresses, including significant participation from institutions such as Ondo Finance. BUIDL promotes the integration of DeFi and enables stable real-world returns to flow into the DeFi field. Together with Franklin, it is a strong competitor of Ondo.
3. Advantages
The products launched by traditional financial institutions such as BUIDL and FOBXX entering Web3 improve the liquidity management efficiency of money market funds through the combination of on-chain and off-chain designs, and provide on-chain investors with channels to obtain real-world returns.
However, in order to meet compliance requirements, especially KYC and AML requirements, they use a whitelist mechanism, and only user addresses that have passed the KYC verification of the fund platform can trade, while non-whitelisted addresses cannot execute transactions. Before an effective risk control plan is introduced, the free transfer function and the transfer risks, fund loss risks, and transaction monitoring issues it brings will be difficult to overcome.
In contrast, Ondo, as a Web3 company rooted in Defi, issues tokens through independent legal entities such as Ondo USDY LLC and is managed by an independent board of directors. It has independent books and accounts, and its assets are isolated from Ondo Finance, Inc., ensuring the security of funds and transfer risks.
At the same time, Ondo imposes restrictions on investable areas to avoid issues such as transaction supervision and monitoring.
4. Summary:
Due to its high credit rating and attractive yield, U.S. Treasury bonds have become the first choice for many investors seeking stable and risk-free returns in 2023 amid global economic turmoil and the Fed's continuous interest rate hikes. However, the high threshold for investing in U.S. Treasury bonds and the complex KYC and account opening process are already a challenge for U.S. citizens, and even more difficult for non-U.S. citizens. Therefore, how to lower the threshold for U.S. Treasury investment through blockchain technology while complying with regulations has become a core issue of concern for many physical asset-backed decentralized finance (RWA) protocols.
Ondo Finance has made significant progress in this field, solving the compliance issue of U.S. debt on-chain within the U.S. legal framework, and gaining market participants including investors, fund managers, custodian banks and brokers. recognition and successfully attracted them to participate in the operations of USDY and OUSG. This marks Ondo’s leading position in the RWA U.S. bond market. Going forward, Ondo is expected to take advantage of this and further explore the tokenization of other asset classes.
