Market Opportunities

BlackRock's CEO Larry Fink believes that tokenization is the future of finance and the next evolution of the market, and his stance may influence the attitudes of other major financial players. As emphasized in our previous research on Dusk Network, Real World Assets (RWA) are becoming an important asset class in the cryptocurrency industry. As of May 2024, the RWA market has exceeded 6.6 billion US dollars, reflecting increasing investor interest in this innovative financial product. Tokenizing RWAs and introducing them to the blockchain can provide yield opportunities in DeFi (decentralized finance). The asset tokenization market is expected to reach 10 trillion US dollars by 2030.

Source: Roland Berger

The primary appeal of this emerging market is not only to provide yield opportunities for DeFi. By digitizing assets into tokens, it achieves asset fractionalization—dividing assets such as government bonds, stocks, and real estate into smaller shares. This process enhances liquidity and opens the door to investment opportunities for investors with different capital levels.

Chainlink explains the operation of asset tokenization with the illustration below here. Its main advantages include increasing liquidity and accessibility through interoperable tokenized assets, allowing small-scale investors to invest in high-yield assets with relatively lower capital. Additionally, due to the public nature of many blockchains, it enhances transparency and strengthens composability by connecting the value of real-world assets to the DeFi ecosystem.

Source: Chainlink

The market value of tokenized US government bonds has also grown from 114 million US dollars in 2023 to 845 million US dollars, with Franklin Templeton being the largest issuer in this asset class, accounting for approximately 38% of the market, according to CoinGecko.

The latest research from Ernst & Young (EY) indicates 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.

While still in its early stages, asset tokenization represents one of the most promising and potential applications of blockchain technology. Ondo Finance is well-positioned to benefit from this trend with its government bond tokenization service as investor interest continues to grow.

Ondo's Technology

Ondo is transforming finance through its decentralized protocol, leveraging blockchain to provide institutional-grade products. By tokenizing stable assets from 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 protocols to support these products.

Currently, Ondo Finance offers two different investment options:

1. USDY(Ondo US Dollar Yield Token)

   • Tokenized notes backed by short-term US government bonds and bank deposits.

   • Offers an annualized yield rate (APY) of 5.30%, with a total value locked (TVL) of $3.1535 billion.

   • More secure and transparent compared to traditional stablecoins like USDT/USDC.

   • Managed by Ankura Trust Company to ensure compliance and investor protection. (Source)

      

     USDT

     USDY

     Underlying Assets

     Government bonds, Bitcoin, unsecured loans

     Government bonds

     Bankruptcy Isolation

     Uncertain

     Yes

     Separate Holding of Reserves and Operating Company

     No

     Yes

     Payment of Returns

     No

     Yes

     Investor's Claim on Reserves

     Unsecured

     Secured

     Third-Party Reporting

     Quarterly

     Daily

     Third-Party Oversight

     No

     Yes

     Regulatory Status

     Uncertain

     Compliant

     Source: Ondo Finance

2. OUSG(Ondo Short-Term US Government Bond)

   • Tokenized short-term US government bonds for passive investors.
   • Offers an annualized yield rate (APY) of 4.81%, with a total value locked (TVL) of $2.2132 billion.
   • In March 2024, the investment will be transferred from BlackRock's SHV to BUIDL.
   • Ondo recently launched a new version of OUSG called rOUSG, providing additional yield to investors through the additional rOUSG tokens.

OUSG

rOUSG

Token Type

Accumulative

Rebase (distribution)

Distribution of Returns

Reflected through increased redemption price (Net Asset Value per share)

Distributed daily based on increased rOUSG token balance

As Government Bond Returns Accumulate, Token Value

Increases

Maintains at $1.00

Best Suited For

Buy and hold cash management (some custodians only support accumulative tokens), collateral for smart contract

Yield-based settlements or exchanges

Source: Ondo Finance

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 with added features. It supports open tokens like USDC and restricted tokens like OUSG (Ondo Short-Term US Government Bond Fund). This means you can freely lend out USDC, but using OUSG as collateral for borrowing requires specific permission to ensure compliance and security.

Flux uses a point-to-pool (p2pool) model similar to Compound, allowing users to borrow with over-collateralization. Lenders can earn interest on the stablecoins they provide, while borrowers can use their collateral to borrow stablecoins, following the asset's permission requirements. Flux Finance is governed by Ondo DAO.

Competitors

With Ondo establishing relationships with giants like BlackRock, it seems to be making a mark in the crypto RWA category, complementing other TradFi companies.

Competition is intensifying in the decentralized finance space. Centrifuge focuses on tokenizing structured credit and issuing debt using NFTs. Ethena offers synthetic asset exposure, allowing users to trade without holding the assets. Maple Finance provides low-collateral loans to institutions, emphasizing credit assessment and lending. Pendle deals with tokenized yield trading, allowing users to separate and trade the yield portion of assets.

Ondo Finance stands out for several reasons. By integrating traditional finance with blockchain and targeting the vast US government bond market, it has broad market coverage. Its complementary approach involves collaborating with traditional financial giants like BlackRock, avoiding direct competition. Additionally, Ondo offers innovative products like USDY and OUSG, providing alternative solutions that are more secure and transparent than traditional stablecoins.

Tokenomics

ONDO Tokenomics Summary

Current Price: $1.87

Market Cap Rank: #54

Fully Diluted Valuation (FDV): $13.15B, Rank #16

Circulating Supply: 1.44 billion ONDO (14.27% of total supply)

Total Supply: 10 billion ONDO

Max Supply: 10 billion ONDO

Next Unlock: 1.67 million ONDO (approx. $2.19 million), in 5 days

Token Distribution

Source: Dropstab

Upcoming Unlock Events

June 18, 2024: 1.67 million ONDO (approximately $2.19 million)

July 18, 2024: 1.67 million ONDO (approximately $2.19 million)

August 18, 2024: 1.67 million ONDO (approximately $2.19 million)

September 18, 2024: 1.67 million ONDO (approximately $2.19 million)

October 18, 2024: 1.67 million ONDO (approximately $2.19 million)

November 18, 2024: 1.67 million ONDO (approximately $2.19 million)

December 18, 2024: 1.67 million ONDO (approximately $2.19 million)

January 18, 2025: 1.94 billion ONDO (approximately $25.5 billion)

January 18, 2026: 1.94 billion ONDO (approximately $25.5 billion)

January 18, 2027: 1.94 billion ONDO (approximately $25.5 billion)

January 18, 2028: 1.94 billion ONDO (approximately $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 currently unclear if there will be additional utilities introduced for ONDO holders in the future.

Team, Fundraising, and Ecosystem

The Ondo Finance team comprises a diverse mix of individuals from traditional finance and the Web3 space. Co-founder and CEO Nathan Allman and President and COO Justin Schmidt both come from Goldman Sachs. Another key member, Katie Wheeler, hails from BlackRock. Additionally, the team 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

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 were sold (3% of total supply), with Pantera Capital leading the round and a 1-year initial lock-up period followed by a 24-month vesting period.

Public Sale: On May 12, 2022, Ondo Finance raised $10 million at a price of $0.03 per token, achieving a 43.28x ROI. A total of 100 million tokens were sold (1% of total supply) on Coinlist, with a 1-year lock-up period followed by an 18-month vesting period.

Series A Funding: In April 2022, Ondo Finance raised $20 million at a price of $0.02 per token, achieving a 64.92x ROI. A total of 1 billion tokens were sold (10% of total supply), with Founders Fund leading the round and a 1-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 will demonstrate the integration of real-world assets with blockchain technology, starting with the tokenization of the USDY product, a tokenized US government bond.
• Thala Labs: Collaboration to launch USDY for use in Thala's AMM pool and as collateral for collateralized debt positions (CDPs), enhancing liquidity and DeFi solutions.
• Wintermute: Partnership to enhance the liquidity of the USDY stablecoin, providing round-the-clock liquidity across multiple blockchain platforms.
• BlackRock: Demonstrated commitment to expanding tokenization efforts and integrating with Ondo products through a $95 million investment in BlackRock's BUIDL fund. (Source)

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 and liquidity of USDY, OUSG, and OMMF to extend the use of its tokenized cash equivalents. This will involve building partnerships and developing cross-chain tools to facilitate these processes.

Source: DeFillama

In the next phase, 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 to a broader range of financial services, using a combination of centralized and decentralized mechanisms. This approach will help bring the benefits of blockchain technology to a wider range of financial operations.

Bullish Fundamentals

• The tokenization industry is poised for significant growth, with Ondo Finance strategically positioned to bring trillions of dollars into Web3 through its collaboration with BlackRock.
• Ondo Finance's TVL has seen substantial growth since early 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.
• Most of the initial investment in OUSG was initially 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 the preferred choice.
• Ondo Finance holds approximately 38% of the current supply of BUIDL.

Bearish Fundamentals

• The utility of the ONDO token shows significant centralization risk.
• 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 crypto, Ondo Finance enters a relatively undeveloped market, with regulatory challenges posing significant hurdles.
• Bad debt is a major risk for DeFi protocols, including Ondo Finance's Flux. Bad debt occurs when the collateral value of a borrower is lower than their debt. If a borrower's equity becomes negative, Flux uses its reserve fund to mitigate losses. To minimize volatility and reduce bad debt risk, Flux only accepts stable assets as collateral.

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