Ondo Finance Research Report: Partnering with BlackRock to Connect Traditional Finance and Web3 through RWA Protocols
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Ondo Finance Research Report: Partnering with BlackRock to Connect Traditional Finance and Web3 through RWA Protocols
Ondo is transforming finance through its decentralized protocol, leveraging blockchain to deliver institutional-grade products.
Navigating Web3 tides with focused insights1. Project Background and Introduction
BlackRock CEO Larry Fink believes tokenization represents the future of finance and the next evolution of markets—a stance that could influence other major financial players. As we emphasized in our previous research on Dusk Network, Real World Assets (RWA) are emerging as a significant asset class within the cryptocurrency industry. By May 2024, the RWA market had surpassed $6.6 billion, reflecting growing investor interest in this innovative financial product. Tokenizing RWAs and integrating them into blockchain enables yield opportunities within DeFi (decentralized finance). The asset tokenization market is projected to reach $10 trillion by 2030.
Source: Roland Berge
The primary appeal of this emerging market extends beyond yield generation in DeFi. By digitizing assets into tokens, it enables fractional ownership—dividing assets such as 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 below how asset tokenization works. Its key advantages include increased liquidity and accessibility through interoperable tokenized assets, enabling retail 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 values 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 in 2024, with Franklin Templeton being the largest issuer in this category, accounting for approximately 38% of the market. A recent EY study shows that 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.
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 bond tokenization services, is well-positioned at the forefront of this trend, experiencing sustained growth in investor interest.
2. Technical Architecture
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 blockchain efficiency. Ondo operates across 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 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. Treasury securities and bank deposits.
Offers an annual percentage yield (APY) of 5.30%, with a total value locked (TVL) of $315.35 million.
Safer and more transparent than traditional stablecoins like USDT/USDC.
Managed by Ankura Trust Company to ensure compliance and investor protection.
Source: Ondo Finance
(2) OUSG (Ondo Short-Term U.S. Government Bond Fund)
Provides passive investors with low-risk exposure to tokenized short-term U.S. Treasury bonds.
Offers an APY of 4.81%, with a TVL of $221.32 million.
In March 2024, shifted investments from BlackRock’s SHV to BUIDL.
Ondo recently launched a new version of OUSG called rOUSG, which provides additional yield to investors via rOUSG tokens.
Source: Ondo Finance
3. Products and Development Roadmap
Ondo Finance aims to bridge traditional finance and decentralized finance using public blockchain technology. Their focus is on creating secure, transparent, and compliant financial products.
OUSG: Tokenized BlackRock short-term U.S. Treasury ETF.
OMMF: Tokenized BlackRock money market fund.
USDY: A yield-bearing alternative to stablecoins.
Flux Finance: A protocol enabling tokenized securities as collateral.
In the next phase, they aim to tokenize publicly traded securities, addressing challenges related to liquidity and infrastructure. Ultimately, Ondo seeks to innovate within traditional finance by extending the benefits of blockchain to broader financial services, combining centralized and decentralized mechanisms. This approach will help bring the advantages of blockchain technology into wider financial operations.
These products have driven significant growth, increasing Ondo's TVL from $40 million to $534 million. Looking ahead, Ondo plans to expand the use of its tokenized cash equivalents by increasing adoption and liquidity for USDY, OUSG, and OMMF. This will involve forming partnerships and developing cross-chain tools to facilitate these processes.
Flux Finance, created by the Ondo Finance team, marks a significant advancement in decentralized lending. Built on Compound V2, it introduces new features. It supports open tokens like USDC and restricted tokens like OUSG (Ondo Short-Term U.S. Government Bond Fund). This means users can freely lend USDC, but borrowing against OUSG requires meeting specific licensing requirements to ensure compliance and security. Flux uses a peer-to-pool (p2pool) model similar to Compound, allowing users to lend and borrow under over-collateralized conditions. Lenders earn interest on their supplied stablecoins, while borrowers can take out stablecoin loans using their collateral, adhering to asset-specific licensing rules. Flux Finance is governed by Ondo DAO.
4. Competitive Landscape
Given Ondo's relationships with giants like BlackRock, it appears poised to make inroads into traditional finance within the crypto RWA category, complementing other TradFi firms. In the decentralized finance space, competition is intensifying. Centrifuge focuses on tokenizing structured credit and issuing debt via NFTs. Ethena offers synthetic asset exposure, allowing users to trade without holding underlying assets. Maple Finance provides undercollateralized loans to institutions, emphasizing credit assessment and lending. Pendle enables trading of tokenized yields, allowing users to separate and trade the yield component of assets.
Ondo Finance stands out for several reasons. It targets the vast U.S. Treasury market by integrating traditional finance with blockchain, achieving broad market coverage. Its complementary strategy involves partnering with traditional finance leaders like BlackRock, avoiding direct competition. Moreover, Ondo offers innovative products like USDY and OUSG, providing safer and more transparent alternatives to traditional stablecoins.
5. Tokenomics
(1) ONDO Tokenomics Summary
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
(2) Token Distribution
Source: Dropstab
(3) 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)
(4) Token Utility
The ONDO token serves as the governance token for both Ondo Finance and its Flux Finance protocol. Holders have voting rights on various proposals within 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 in voting power. It remains unclear whether additional utilities will be introduced for ONDO holders in the future.
6. Team, Funding History, and Ecosystem
The Ondo Finance team comprises individuals with diverse backgrounds from both traditional finance and Web3. Founder and CEO Nathan Allman, along with President and COO Justin Schmidt, both hail from Goldman Sachs. Another key member, Katie Wheeler, comes 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 objectives.
Source: Ondo Finance
Seed Round: In December 2021, Ondo Finance raised $4 million at $0.013 per token, achieving a 99.87x 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 Round: 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 release 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.
Ondo Finance has established several key partnerships to strengthen its blockchain and financial services:
Aptos Foundation: This collaboration highlights the integration of real-world assets with blockchain technology, starting with the tokenized U.S. Treasury product USDY.
Thala Labs: Partnership to enable USDY usage in Thala’s AMM pool and as collateral for collateralized debt positions (CDPs), enhancing liquidity and DeFi solutions.
Wintermute: Collaboration to enhance liquidity for the dollar-yield stablecoin USDY, providing round-the-clock liquidity across multiple blockchain platforms.
BlackRock: A $95 million investment into BlackRock’s BUIDL fund demonstrates commitment to scaling tokenization efforts and integrating with Ondo’s products.
7. Summary
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 complementary strategy involves partnering with traditional finance 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.
Bullish Factors:
The tokenization sector is poised for significant growth. Ondo Finance’s partnership with BlackRock strategically positions it to bring trillions of dollars into Web3.
Ondo Finance’s TVL has seen substantial growth since early 2024. Real-world assets represent a fresh and promising narrative in crypto, with strong potential for early adoption.
Ondo Finance is committed to evolving its products to meet customer needs.
Initially, most OUSG investments 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, becoming the preferred choice.
Ondo Finance holds approximately 38% of BUIDL’s current supply.
Bearish Factors:
The ONDO token exhibits 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 Flux Finance by Ondo Finance. Bad debt occurs when a borrower’s collateral value falls below their loan amount. If a borrower’s equity turns negative, Flux uses its reserve funds to mitigate losses. To minimize volatility and reduce bad debt risk, Flux only accepts stable assets as collateral.
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