Analyzing Ondo: Tokenizing stable assets from traditional finance, combining reliability with blockchain efficiency
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Analyzing Ondo: Tokenizing stable assets from traditional finance, combining reliability with blockchain efficiency
Ondo is transforming finance through its decentralized protocol, leveraging blockchain to deliver institutional-grade products.
Navigating Web3 tides with focused insights
Market Opportunity
BlackRock CEO Larry Fink believes tokenization is the future of finance and the next evolution of markets—a stance that could influence other major financial players. As we highlighted in our previous research on Dusk Network, Real World Assets (RWA) are becoming a significant asset class within the crypto industry. As of May 2024, the RWA market has exceeded $6.6 billion, reflecting growing investor interest in this innovative financial product. Tokenizing RWAs and bringing them onto blockchains can unlock yield opportunities in DeFi (decentralized finance). The asset tokenization market is projected to reach $10 trillion by 2030.
Source: Roland Berger
The primary appeal of this emerging market goes beyond offering yield opportunities in DeFi. By digitizing assets into tokens, it enables fractional ownership—breaking down assets like government bonds, equities, and real estate into smaller shares. This process enhances liquidity and opens investment opportunities to investors with varying capital levels.
Chainlink illustrates how asset tokenization works. Key benefits include increased liquidity and accessibility through interoperable tokenized assets, enabling smaller investors to access high-yield assets with relatively low capital. Additionally, due to the public nature of many blockchains, it improves transparency and enhances composability by linking real-world asset value to the DeFi ecosystem.
Source: Chainlink
The market cap of tokenized U.S. government bonds has also grown from $114 million in 2023 to $845 million, with Franklin Templeton being the largest issuer in this category, accounting for approximately 38% of the market.
A recent study by EY (Ernst & Young) shows that 64% of high-net-worth investors and 33% of institutional investors plan to increase their investments in tokenized treasuries by the end of 2024.
Although still in its early stages, asset tokenization represents one of the most promising and impactful applications of blockchain technology. Ondo Finance, with its treasury tokenization services, is well-positioned to benefit from this trend as investor interest continues to grow.
Ondo’s Technology
Ondo is transforming finance through its decentralized protocol, leveraging blockchain to deliver institutional-grade products. By tokenizing stable assets from traditional finance, Ondo combines reliability with the efficiency of blockchain.
Ondo operates across two main divisions: asset management and technology. The asset management arm creates and oversees tokenized financial products, while the technology team develops the protocols supporting these offerings.
Currently, Ondo Finance offers two distinct investment options:
1. USDY (Ondo US Dollar Yield Token)
○ A tokenized note backed by short-term U.S. Treasuries and bank deposits.
○ Offers a 5.30% annual percentage yield (APY), with a total value locked (TVL) of $315.35 million.
○ Safer and more transparent than traditional stablecoins such as USDT/USDC.
○ Managed by Ankura Trust Companyto ensure compliance and investor protection.
Source: Ondo Finance
2. OUSG (Ondo Short-Term U.S. Treasury)
○ Provides passive investors with low-risk exposure to tokenized short-term U.S. Treasury bonds.
○ Offers a 4.81% annual percentage yield (APY), with a total value locked (TVL) of $221.32 million.
○ In March 2024, shifted investments from BlackRock’s SHV to BUIDL.
○ Ondo recently launched an upgraded version of OUSG called rOUSG, which provides additional yield to investors via rOUSG tokens.
Source: Ondo Finance
Ondo’s Flux Finance
Flux Finance, created by the Ondo Finance team, marks a significant advancement in decentralized lending. Built on Compound V2, it adds new functionalities. It supports both open tokens like USDC and restricted tokens like OUSG (Ondo Short-Term U.S. Government Bond Fund). This means users can freely lend out USDC, but using OUSG as collateral requires meeting specific licensing requirements to ensure compliance and security.
Flux uses a peer-to-pool (p2pool) model similar to Compound, allowing users to borrow and lend under over-collateralized conditions. Lenders earn interest on the stablecoins they provide, while borrowers can use their collateral to borrow stablecoins, subject to licensing rules. Flux Finance is governed by Ondo DAO.
Competitors
Given Ondo's relationship with giants like BlackRock, Ondo appears to be carving a niche in traditional finance within the crypto RWA category, complementing rather than competing directly with other TradFi firms.
In the decentralized finance space, competition is intensifying. Centrifuge focuses on tokenizing structured credit and issues debt via NFTs. Ethena offers synthetic asset exposure, enabling trading without holding the underlying assets. Maple Finance provides undercollateralized loans to institutions, emphasizing credit assessment and underwriting. Pendle enables tokenized yield trading, allowing users to separate and trade the yield component of assets.
Ondo Finance stands out for several reasons. It targets the massive U.S. Treasury market by integrating traditional finance with blockchain, achieving broad market coverage. Its collaborative approach involves partnering with traditional finance leaders like BlackRock, avoiding direct competition. Furthermore, Ondo offers innovative products like USDY and OUSG, providing safer and more transparent alternatives to traditional stablecoins.
Tokenomics
ONDO Tokenomics Summary
Current Price: $1.87
Market Cap Rank: #54
Fully Diluted Valuation (FDV): $131.5B, Rank #16
Circulating Supply: 1.44 billion ONDO (14.27% of total supply)
Total Supply: 10 billion ONDO
Maximum Supply: 10 billion ONDO
Next Unlock: 1.67 million ONDO (~$2.19 million), in 5 days
Token Distribution
Source: Dropstab
Upcoming Unlock Events
June 18, 2024: 1.67 million ONDO (~$2.19 million)
July 18, 2024: 1.67 million ONDO (~$2.19 million)
August 18, 2024: 1.67 million ONDO (~$2.19 million)
September 18, 2024: 1.67 million ONDO (~$2.19 million)
October 18, 2024: 1.67 million ONDO (~$2.19 million)
November 18, 2024: 1.67 million ONDO (~$2.19 million)
December 18, 2024: 1.67 million ONDO (~$2.19 million)
January 18, 2025: 1.94 billion ONDO (~$25.5B)
January 18, 2026: 1.94 billion ONDO (~$25.5B)
January 18, 2027: 1.94 billion ONDO (~$25.5B)
January 18, 2028: 1.94 billion ONDO (~$25.5B)
Token Utility
The ONDO token is the governance token for both Ondo Finance and its Flux Finance protocol. Holders have voting rights on various proposals within the Ondo DAO, ensuring all decisions are made transparently on-chain.
To submit a proposal, an individual must hold or be delegated at least 100 million ONDO voting power.
It remains unclear whether additional utilities will be introduced for ONDO holders in the future.
Team, Funding, and Ecosystem
The Ondo Finance team brings together diverse talent from both traditional finance and Web3. Founder and CEO Nathan Allman and President and COO Justin Schmidt both come from Goldman Sachs. Another key member, Katie Wheeler, hails from BlackRock. The team also includes developers from OpenSea, MakerDAO, and Boson Protocol. This blend of expertise aligns closely with Ondo Finance’s unique vision and goals.
Source: Ondo Finance
Funding Summary
Seed Round: In December 2021, Ondo Finance raised $4 million at $0.013 per token, delivering 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 1-year initial lock-up followed by a 24-month vesting period.
Public Sale: On May 12, 2022, raised $10 million at $0.03 per token, achieving a 43.28x ROI. A total of 100 million tokens (1% of total supply) were sold via CoinList, with a 1-year lock-up followed by an 18-month vesting period.
Series A: In April 2022, raised $20 million at $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 1-year initial lock-up followed by a 24-month vesting period.
Partnerships
Ondo Finance has established several key partnerships to strengthen its blockchain and financial services:
● Aptos Foundation: This partnership integrates real-world assets with blockchain technology, starting with the tokenized U.S. Treasury product USDY.
● Thala Labs: The collaboration enables USDY to be used in Thala’s AMM pools and as collateral for collateralized debt positions (CDPs), enhancing liquidity and DeFi solutions.
● Wintermute: The partnership aims to boost liquidity for the USD yield-bearing stablecoin USDY, providing round-the-clock liquidity across multiple blockchain platforms.
● BlackRock: By investing $95 million into BlackRock’s BUIDL fund, Ondo demonstrated its commitment to expanding tokenization efforts and integrating with Ondo’s product suite.
Adoption and Roadmap
Ondo Finance aims to bridge 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 U.S. Treasury ETF.
● OMMF: Tokenized BlackRock money market fund.
● USDY: Yield-bearing alternative to stablecoins.
● Flux Finance: Protocol enabling tokenized securities as collateral.
These products have driven significant growth, increasing Ondo’s TVL from $40 million to $534 million. Looking ahead, Ondo plans to expand the adoption and liquidity of its tokenized cash equivalents, including USDY, OUSG, and OMMF. This will involve forming partnerships and developing cross-chain tools to facilitate these processes.
Source: DeFillama
In the next phase, Ondo aims to tokenize publicly traded securities, addressing challenges related to liquidity and infrastructure. Ultimately, Ondo seeks to innovate in traditional finance by extending the advantages of blockchain to broader financial services, combining centralized and decentralized mechanisms. This approach will help bring the benefits of blockchain technology into wider financial operations.
Bullish Fundamental Factors
● The tokenization sector 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 seen substantial growth since the beginning of 2024. Real-world assets represent a fresh and promising narrative in crypto, with strong early adoption potential.
● Ondo Finance is committed to evolving its products to meet customer needs.
● Most OUSG investments were initially held in BlackRock’s iShares Short Treasury Bond ETF (SHV). In March 2024, they shifted 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, becoming a preferred choice.
● Ondo Finance holds approximately 38% of the current supply of BUIDL.
Bearish Fundamental Factors
● ONDO token utility shows significant centralization risk.
● While all holders can participate in governance, the largest holders wield disproportionate influence.
● Approximately 85% of the total ONDO supply is controlled by the Ondo Finance team.
● Operating at the intersection of TradFi and crypto, Ondo Finance enters a relatively untapped market where regulation poses significant challenges.
● Bad debt is a major risk for DeFi protocols, including Ondo’s Flux. This occurs when a borrower’s collateral value drops below their debt. If a borrower’s equity turns negative, Flux uses its reserves to mitigate losses. To minimize volatility and reduce bad debt risk, Flux only accepts stable assets as collateral.
Disclaimer
This document has been prepared by Greythorn Asset Management Pty Ltd (ABN 96 621 995 659) (hereinafter referred to as “Greythorn”). The information contained herein is for general informational purposes only and does not constitute investment or financial advice. This document is not intended as an advertisement, nor is it an offer or solicitation to buy or sell any financial instrument or engage in any particular trading strategy. In preparing this document, Greythorn did not take into account the investment objectives, financial situation, or particular needs of any recipient. Therefore, individuals or entities receiving this document should assess their own circumstances and seek professional advice from their accountant, legal counsel, or other advisors before making any investment decision.
This document contains statements, opinions, forecasts, and forward-looking statements based on certain assumptions. Greythorn assumes no obligation to update such information. These assumptions may or may not prove correct. Greythorn and its directors, employees, agents, and advisors make no representations or warranties regarding the accuracy or achievability of any forward-looking statements or the assumptions upon which they are based. Greythorn and its directors, employees, agents, and advisors do not guarantee the accuracy, completeness, or reliability of any information contained in this document. To the maximum extent permitted by law, Greythorn and its directors, employees, agents, and advisors shall not be liable for any loss, claim, damage, cost, or expense arising from or related to the information contained in this document.
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