Ondo Finance is a DeFi platform that has the ability to tokenize Real World Assets (RWA) such as stocks, bonds, and ETFs so that all users can access investment through on-chain. Ondo Finance has just launched a layer-1 solution called Ondo Chain to accelerate the creation of on-chain financial markets related to RWA at the institutional level. Let's explore Ondo Finance through the article below!
What is Ondo Finance (ONDO)? Institutional-grade DeFi platform for Real World Assets
What is Ondo Finance?
Ondo Finance is a DeFi platform that has the ability to tokenize Real World Assets (RWA) such as stocks, bonds, and ETFs so that all users can access investment through on-chain. Ondo Finance builds a transparent and easily accessible infrastructure system for all users to invest, especially institutional clients, through products including USDY Token, OUSG, Ondo GM, Ondo Chain,...
What is Ondo Finance?
Ondo Finance's Products
Ondo Finance started as a Yield Strategy project, allowing users to choose risk and return levels based on their individual risk appetite. The second product is Liquidity-as-a-Service (LaaS).
However, in 2022, with the market collapse and a significant decrease in DeFi trading volume, Ondo realized it would be difficult to compete in the market, so they decided to make a transformative change. They eliminated all their old products to focus on building solutions for the Real World Assets segment.
Ondo Finance's New Products
In the following section, we will explore the products Ondo Finance offers in this v2 version. But first, let's go over some basic concepts about bonds:
- Short-term US Treasuries: These are bonds issued by the US government with a short maturity, usually under 1 year. This is a safe investment tool with low risk, as the US government is considered the issuer with the highest repayment ability.
- Short-Term US Government Bond Fund: These are investment funds that focus on short-term US government bonds. They typically include various types of bonds and are issued by financial institutions, such as iShares Short Treasury Bond ETF (BlackRock), Vanguard Short-Term Treasury ETF (Vanguard).
- US Money Markets: This is where organizations and banks borrow and lend money in the short-term, usually less than a year. Transactions in this market often involve assets such as short-term securities, commercial paper, and other short-term financial instruments.
Ondo Finance divides its product line into 2 categories:
- General products that anyone can use: USDY
- Products only available to qualified individuals: OUSG, OMMF
USDY Token - US Dollar Yield Token
USDY (US Dollar Yield Token) is the tokenized version of US government bonds and non-term bank deposits. USDY is only available to non-US entities.
Although Ondo does not call USDY a stablecoin, it has similar characteristics. USDY is pegged to the value of $1 USD and can be freely traded between investors.
The difference between USDY and traditional stablecoins is that it allows holders to earn the yield from government bonds. It is a yield-bearing token or, more specifically, a yield-bearing stablecoin. The current USDY yield commitment is 5.1%, and this rate is adjusted monthly based on the underlying asset's performance.
To ensure client assets even in the event of an Ondo Finance bankruptcy, the collateral assets are monitored and managed by a third party, Ankura Trust. They are responsible for providing transparency on the assets, handling disputes, and repaying clients in the event of an Ondo bankruptcy.
- Chains supporting USDY: Ethereum, Mantle, Solana.
- Mechanism of Operation:
There are 3 main activities with Ondo Finance:
Onboarding
First, to participate in the platform, users need to complete KYC (Know Your Customer), which is a mandatory compliance mechanism before using any Ondo Finance product.
Investing
Deposit Funds: After being verified as eligible to participate in the platform, users can deposit funds at any time. There are two ways to deposit funds: using USDC on the Ondo website interface, or by bank transfer (for deposits over $100,000).
Cohort Assignment: The deposited funds will then be allocated to specific dedicated portfolios, called cohorts. The purpose of this classification is to group similar investments together for management (e.g., based on maturity date).
Certificate generation: Typically, within 3 business days of registration, users will receive a token certificate. The reason for issuing the certificate first and minting the USDY token later is due to legal regulations, with a restricted period of 40-50 days. The token certificate is a PDF document sent by email, confirming the investment amount.
Token minting: After the restricted period, the USDY tokens will be officially minted and distributed to the users. This day is called the Token Eligibility Date. Once users receive the USDY tokens, they can use them freely in the market like any other token.
Redeeming
Redemption request: When there is no longer a need to use USDY, users can request a conversion to get their money back. The conversion process can be done from the USDY token through the Ondo website or from the token certificate (Token Certificate) by sending an email (only applicable for amounts greater than $100,000, if less, users need to wait until the token is minted).
Redemption Fulfillment: Redemption requests are usually processed within 2 business days of the request. If the amount to be redeemed is less than $100,000, the user will have to bear the transaction fees, if the amount to be redeemed is greater than $100,000, Ondo will pay. Additionally, users will also have to pay a general redemption fee to Ondo in all cases. It should also be noted that all redemptions will be converted to US dollars, so users need to have a USD-supported account.
OUSG - Ondo Short-Term US Government Bond Fund
OUSG is a product that helps users earn profits from the US government's short-term bond funds. In essence, OUSG is the tokenized version of the US government's short-term bond ETF.
According to the announcement from Ondo, the majority of OUSG's investment portfolio will be the iShares Short Treasury Bond ETF (SHV), a BlackRock ETF fund.
The APY yield of OUSG provided by Ondo is currently 4.76% at the time of writing. Users will have to bear a few types of costs when using this product.
- Chain support for OUSG: Ethereum, Polygon, Solana
- Operating mechanism:
Participating in this process is more complex with many stakeholders involved:
Ondo I GP: The coordinating entity
Ondo Capital Management: The investment management unit
Ondo Finance Inc.: The technology unit that tokenizes the ETF
Ondo I LP: The unit that collects investor capital
Qualified custodian: The unit that oversees customer assets
Clear Street: The securities brokerage unit that executes ETF buy and sell orders
Coinbase: The unit that monitors and manages on-chain assets
NAV Consulting: The ETF advisory unit
Similar to USDY, the investment process in OUSG is also divided into 3 stages: Onboarding, Subscription, and Redemption.
Onboarding
Investors need to complete KYC to participate in Ondo Finance products, if KYC has already been done, this step can be skipped.
Subscription
Users who meet the requirements will be able to register to participate in the OUSG product. Users send their USDC to Ondo's smart contract.
This USDC is then immediately transferred to Coinbase Custody.
Ondo will then convert the USDC to USD and then transfer the USD to Clear Street to execute the ETF trades.
After NAV Consulting calculates and approves your request, the OUSG token will be minted, representing your share in the ETF fund.
When the ETF pays dividends, Ondo will automatically add them to your principal.
Redemption
Users who want to redeem will send their OUSG tokens to the fund's smart contract address. These operations are performed on the Ondo website.
Then, NAV Consulting receives the request and calculates your redemption amount, if approved, Ondo will sell the corresponding shares and then transfer the USD to Coinbase to convert to USDC.
This USDC is then transferred back to your account.
Ondo Global Markets
Ondo Global Markets (Ondo GM) is a platform designed to tokenize various assets including stocks, bonds, and ETFs in the United States onto the blockchain. This allows global investors to access a wide range of publicly traded assets in the US through on-chain. Through its APIs and SDKs, Ondo GM also empowers third-party developers to build innovative new financial applications in various creative ways.
Key features:
Access to thousands of RWAs: Users will be able to access over 1,000 high-quality securities listed on the NYSE and NASDAQ, including ETFs and individual stocks.
Global 24/7 access: Ondo GM allows investors outside the US to easily access high-quality RWAs 24/7 without market closures like traditional securities.
Instant minting and redemption of tokens: Users will be able to instantly mint and redeem the tokenized securities using selected stablecoins and yieldcoins.
High liquidity: Ondo GM's assets are designed to have high liquidity, backed by external securities, allowing for instant buying and selling with low slippage.
Ondo Chain is an Omnichain layer-1 solution with a Proof-of-Stake (POS) consensus mechanism dedicated to RWAs. Ondo Chain will support the tokenized assets in Ondo GM by integrating with oracles, bridges, and the broader DeFi ecosystem.
Ondo Chain will also allow asset managers to create and efficiently manage omnichain RWAs. This platform provides enterprise-grade security for messaging and cross-chain bridging activities, allowing Ondo Chain to function as a hub connecting assets and applications across multiple blockchains.
Key features of Ondo Chain include:
Security backed by high-quality RWAs: Validators can stake RWAs and other highly liquid assets to secure the network, bridges, and oracles. This ensures cost-effective validator services while allowing investors to earn returns on their RWAs.
Note: The information in the article should not be considered investment advice, Coin68 is not responsible for any of your investment decisions.
