Ondo Finance stands out for several reasons. By integrating traditional finance with blockchain, it targets the vast US Treasury market, offering extensive market coverage. Its complementary approach involves partnerships with traditional financial giants like BlackRock, avoiding direct competition. Additionally, Ondo offers innovative products such as USDY and OUSG, providing safer and more transparent alternatives to traditional stablecoins.
The market opportunity lies in tokenization, which BlackRock’s CEO Larry Fink believes is the future of finance and the next step in market evolution. Real World Assets (RWA) have become an important asset class in the cryptocurrency industry, with a market size exceeding $6.6 billion as of May 2024. Tokenizing RWAs and introducing them into the blockchain can provide revenue opportunities in DeFi. The asset tokenization market is expected to reach $100 trillion by 2030.
The main attraction of this emerging market is not only the revenue opportunities it provides for DeFi. By digitizing assets into tokens, it allows for the fractionalization of assets, breaking down assets like government bonds, stocks, and real estate into smaller shares. This process enhances liquidity and opens doors for investment opportunities for investors with different capital levels.
Chainlink explains the process of asset tokenization in the following illustration. Its main advantages include increased liquidity and accessibility through interoperable tokenized assets, allowing small investors to invest in high-yield assets with relatively lower capital. Furthermore, due to the public nature of many blockchains, it enhances transparency and strengthens portfolios by connecting the value of real-world assets to the DeFi ecosystem.
The market value of tokenized US government bonds has grown from $114 million in 2023 to $845 million, with Franklin Templeton being the largest issuer in this asset class, accounting for approximately 38% of the market.
According to the latest research by EY, 64% of high-net-worth investors and 33% of institutional investors plan to increase their investments in tokenized government bonds by the end of 2024.
While still in its early stages, asset tokenization represents one of the most promising and potential applications of blockchain technology. Ondo Finance, with its government bond tokenization services, is well-positioned in this trend, with growing investor interest.
Ondo’s Technology
Ondo is transforming finance through its decentralized protocol, leveraging blockchain to offer institutional-grade products. By tokenizing stable assets in traditional finance, Ondo combines reliability with the efficiency of blockchain.
Ondo has two main divisions: Asset Management and Technology. The Asset Management division creates and oversees tokenized financial products, while the Technology division develops the protocols supporting these products.
Currently, Ondo Finance offers two different investment options:
USDY (Ondo US Dollar Yield Token): Tokenized notes backed by short-term US government bonds and bank deposits. It offers an annual percentage yield (APY) of 5.30% with a total value locked (TVL) of $315.35 million. It is safer and more transparent than traditional stablecoins like USDT/USDC. Managed by Ankura Trust Company to ensure compliance and investor protection.
OUSG (Ondo Short-Term US Government Bond): Provides low-risk tokenized short-term US government bonds for passive investors. It offers an APY of 4.81% with a TVL of $221.32 million. In March 2024, the investment will transition from BlackRock’s SHV to BUIDL. Ondo recently launched a new version of OUSG called rOUSG, which provides additional yield for investors through additional rOUSG tokens.
Ondo’s Flux Finance
Flux Finance, created by the Ondo Finance team, is a significant advancement in decentralized lending. It is based on Compound V2 but adds new features. It supports open tokens like USDC and restricted tokens like OUSG. This means users can freely borrow USDC, but using OUSG as collateral for loans requires meeting specific licensing requirements to ensure compliance and security.
Flux uses a point-to-pool (p2pool) model similar to Compound, allowing users to borrow and lend with over-collateralization. Lenders earn interest on the stablecoins they provide, while borrowers can borrow stablecoins using their collateral and follow the asset’s licensing requirements. Flux Finance is governed by the Ondo DAO.
Competitors
In the decentralized finance (DeFi) space, competition is intensifying. Centrifuge focuses on tokenizing structured credit and uses NFTs for debt issuance. Ethena provides exposure to synthetic assets, allowing users to trade without holding the underlying assets. Maple Finance offers low-collateral loans to institutions, emphasizing credit assessment and lending. Pendle deals with tokenized yield trading, allowing users to separate and trade the income component of assets.
Ondo Finance stands out for several reasons. By integrating traditional finance with blockchain, it targets the vast US Treasury market, offering extensive market coverage. Its complementary approach involves partnerships with traditional financial giants like BlackRock, avoiding direct competition. Additionally, Ondo offers innovative products such as USDY and OUSG, providing safer and more transparent alternatives to traditional stablecoins.
Tokenomics
ONDO Token Economics Summary
Current Price: $1.87
Market Cap Rank: #54
Fully Diluted Valuation (FDV): $13.15 billion, Rank #16
Circulating Supply: 1.44 billion ONDO (14.27% of total supply)
Total Supply: 10 billion ONDO
Max Supply: 10 billion ONDO
Upcoming Unlocking Events
June 18, 2024: 1.67 million ONDO (approx. $2.19 million)
July 18, 2024: 1.67 million ONDO (approx. $2.19 million)
August 18, 2024: 1.67 million ONDO (approx. $2.19 million)
September 18, 2024: 1.67 million ONDO (approx. $2.19 million)
October 18, 2024: 1.67 million ONDO (approx. $2.19 million)
November 18, 2024: 1.67 million ONDO (approx. $2.19 million)
December 18, 2024: 1.67 million ONDO (approx. $2.19 million)
January 18, 2025: 1.94 billion ONDO (approx. $25.5 billion)
January 18, 2026: 1.94 billion ONDO (approx. $25.5 billion)
January 18, 2027: 1.94 billion ONDO (approx. $25.5 billion)
January 18, 2028: 1.94 billion ONDO (approx. $25.5 billion)
Token Utility
The ONDO token is the governance token for Ondo Finance and its Flux Finance protocol. Holders have the right to vote on various proposals within the Ondo DAO, ensuring all decisions are transparently made on-chain.
To initiate a proposal, individuals must hold or be delegated at least 100 million ONDO voting power.
It is unclear if there will be additional utility introduced for ONDO holders in the future.
Team, Fundraising, and Ecosystem
The Ondo Finance team consists of a diverse group of individuals with backgrounds in traditional finance and Web3. Founder and CEO Nathan Allman and President and COO Justin Schmidt come from Goldman Sachs. Another key member, Katie Wheeler, comes from BlackRock. Additionally, the team includes developers from OpenSea, MakerDAO, and Boson Protocol. This combination of expertise aligns well with Ondo Finance’s unique vision and goals.
Fundraising Summary
Seed Round:
In December 2021, Ondo Finance raised $4 million at a price of $0.013 per token, achieving a 99.87x return on investment (ROI). A total of 300 million tokens (3% of total supply) were sold, led by Pantera Capital, with a one-year initial lock-up period followed by a 24-month vesting period.
Public Sale Round:
On May 12, 2022, $10 million was raised at a price of $0.03 per token, achieving a 43.28x ROI. A total of 100 million tokens (1% of total supply) were sold on Coinlist, with a one-year lock-up period followed by an 18-month vesting period.
Series A Funding:
In April 2022, $20 million was raised at a price of $0.02 per token, achieving a 64.92x ROI. A total of 1 billion tokens (10% of total supply) were sold, led by Founders Fund, with a one-year initial lock-up period followed by a 24-month vesting period.
Partnerships
Ondo Finance has formed several key partnerships to strengthen its blockchain and financial services:
Aptos Foundation: This partnership demonstrates the integration of real-world assets with blockchain technology, starting with the tokenized US government bond product USDY.
Thala Labs: The partnership introduces the use of USDY in Thala’s AMM pools and as collateral for borrowing positions (CDPs), enhancing liquidity and DeFi solutions.
Wintermute: The partnership aims to enhance liquidity for the USDY stablecoin by providing round-the-clock liquidity across multiple blockchain platforms.
BlackRock: Demonstrating a commitment to expanding tokenization efforts and integrating with Ondo’s products, Ondo Finance received a $95 million investment in BlackRock’s BUIDL fund.
Adoption and Roadmap
Ondo Finance aims to connect traditional finance and decentralized finance through public blockchain technology. Their focus is on creating secure, transparent, and compliant financial products.
Key Products:
OUSG: Tokenized BlackRock Short-Term US Government Bond ETF.
OMMF: Tokenized BlackRock Money Market Fund.
USDY: Alternative to yield stablecoins.
Flux Finance: Protocol supporting tokenized securities as collateral.
These products have driven significant growth, with Ondo’s TVL increasing from $40 million to $534 million. Looking ahead, Ondo plans to expand the use of tokenized cash equivalents by increasing the adoption and liquidity of USDY, OUSG, and OMMF. This will involve establishing partnerships and developing cross-chain tools to facilitate these processes.
In the next stage, they aim to tokenize publicly traded securities, addressing challenges related to liquidity and infrastructure. Ultimately, Ondo hopes to innovate in traditional finance by extending the advantages of blockchain technology and combining centralized and decentralized mechanisms. This approach will help bring the benefits of blockchain technology to a wider range of financial operations.
Bullish Fundamental Factors
The tokenization industry is poised for significant growth, and Ondo Finance’s collaboration with BlackRock strategically positions it to bring trillions of dollars into Web3.
Ondo Finance’s TVL has experienced significant growth since the beginning of 2024. Real-world assets represent a fresh and promising narrative in the crypto space, with strong early adoption potential.
Ondo Finance is committed to developing its products to meet customer demand.
The majority of OUSG investments initially were in BlackRock’s iShares Short Treasury Bond ETF (SHV). In March 2024, they transitioned to BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL), aligning with Ondo’s focus on asset tokenization.
Ondo Finance is a leader in the crypto RWA space, making it the preferred choice.
Ondo Finance holds approximately 38% of the current supply of BUIDL.
Bearish Fundamental Factors
The utility of the ONDO token presents significant centralization risks.
While all holders can participate in governance, the largest holders have the most influence.
Approximately 85% of the total ONDO supply is controlled by the Ondo Finance team.
Operating at the intersection of TradFi and cryptocurrencies, Ondo Finance enters a relatively untapped market where regulatory challenges loom large.
Bad debt is a major risk for DeFi protocols, including Flux by Ondo Finance. Bad debt occurs when the value of a borrower’s collateral falls below their debt. If a borrower’s equity becomes negative, Flux uses its reserve funds to mitigate losses. To minimize volatility and reduce the risk of bad debt, Flux only accepts stable assets as collateral.