The Real World Asset (RWA) Battle between Traditional Finance and DeFi: Franklin FOBXX vs. Ondo Finance

Tokenized assets representing RWA have gained significant attention this year. Among them, the tokenized U.S. Treasury bond market accounts for a market size of $603 million, with the largest player being the traditional financial Franklin Templeton group. Meanwhile, the decentralized investment platform Ondo Finance has been rapidly gaining ground since January this year, with estimated assets totaling $156 million.

Franklin Templeton OnChain U.S. Government Money Fund FOBXX

Franklin Templeton, headquartered in California, is an asset management company serving clients in 155 countries with assets under management of approximately $1.4 trillion as of March 31, 2023.

The Franklin OnChain U.S. Government Money Fund (FOBXX) was established on April 6, 2021. The fund invests 99.5% of its total assets in U.S. government securities, cash, and repurchase agreements fully collateralized by U.S. government securities or cash. As of the end of June, the total assets were nearly $300 million, with a net expense ratio of 0.20%.

FOBXX is the first U.S.-registered mutual fund to transact and record share ownership on a public blockchain. It was initially launched on the Stellar blockchain. In April of this year, it expanded to Polygon and may also be issued on the Avalanche and Aptos blockchains, as well as the Ethereum Layer 2 solution Arbitrum.

Investors in FOBXX must have a dedicated on-chain wallet for transactions, created for them by the fund's transfer agent at account opening. They can check the fund balance in the wallet through the Benji Investments app. Only this wallet has the authority to purchase, redeem, and hold fund shares, with the private keys associated with the investor's wallet held by the fund's transfer agent.

To address concerns about blockchain barriers impacting investor willingness, Franklin Templeton has been offering fee-related discounts to make tokenized funds more attractive. Without subsidies, it would charge a 0.89% fee, but currently limits the fee to 0.2%. The fund has an annualized return of 3.75% over the past year.

Decentralized Investment Platform Ondo

The decentralized investment platform Ondo Finance, led by former Goldman Sachs employee Nathan Allman, has received support from prominent investors including Peter Thiel's Founders Fund, Coinbase Ventures, and Tiger Global. Ondo announced the launch of tokenized public debt products in January, allowing stablecoin holders to invest in U.S. Treasuries and investment-grade corporate bonds through its tokenized funds. According to Binance reports, their annualized returns exceed 4.5%, higher than Franklin Templeton's FOBXX at 3.75%. They currently have tokenized products worth approximately $156 million, about half of FOBXX's amount.

Ondo's partner is the U.S. compliant exchange Coinbase, which is also a partner of the stablecoin USDC. Investors verified through KYC on Ondo Finance can invest their USDC in Ondo's products. Taking OUSG as an example, the process involves:

Investors connect their wallet on the Ondo website → Invest with USDC with a minimum amount of $100,000 → Coinbase converts USDC to USD → Funds are transferred to Clear Street, the custodian and primary broker → Fund managers buy and sell iShares ETFs listed on NASDAQ with the code SHV according to instructions → Tokenized OUSG is sent back to the investor's wallet address.

Ondo Finance operates as a Defi protocol and is not regulated by the SEC.

RWA Requires More Than Just Blockchain Technology

The traditional financial system relies on many intermediaries, including brokers, background checks, and regulatory roles, to maintain a certain level of security and control in transactions, but this also comes with high costs. Supporters believe that tokenization on the blockchain can save traditional finance a significant amount of costs. While RWA market value continues to reach new highs and is still in its early stages, the biggest players are still in traditional finance. Companies like Franklin Templeton are merely using blockchain technology for transaction processing and record-keeping of share ownership, relying on human roles for other processes, unlike what Defi proponents envision as fully automated.

Assets like real estate, gold, traditional financial instruments such as stocks, bonds, and even the trending carbon credits can be tokenized on the blockchain, but their operations still heavily rely on manual processes. Platforms like the Mitsubishi Digital Asset Platform leverage expertise in real estate to select suitable projects, manage complex tasks such as property management fees, utilities, taxes, and distribute returns directly to investors. It's similar to traditional financial real estate investment trusts (REITs) but utilizes blockchain technology for transparency. Blockchain plays a partial technical role in this, with many professional roles like project selection, legal, and management that cannot be replaced by smart contracts.

RWA is not without risks. Besides the technical thresholds and risks of blockchain itself, the nature of assets also has a significant impact. For instance, the decentralized stablecoin protocol MakerDAO decided to stop providing additional loans to one of its RWA vaults, Harbor Trade, due to $2.1 million in defaulted assets. RWA is not foolproof; in this example, risk management by the protocol is crucial, as even bank loans face the risk of bad debts.