ONDO Riding the RWA Train Soared 14 Times, Is Profitable USDY Better Than Stablecoins?

Ondo Finance ONDO has recently gained over 14 times in value since January due to the topic of RWA real-world assets. What does Ondo Finance do? How is its tokenized bill USDY different from stablecoins?

Ondo Finance Introduction

The decentralized investment platform Ondo Finance was founded in 2021 by former Goldman Sachs employee Nathan Allman, leveraging his understanding of traditional finance. In January 2023, Ondo Finance entered the realm of Real World Assets (RWA). According to Defillama data, Ondo Finance ranks third in Total Value Locked (TVL) in the RWA sector with a TVL of $464 million, issued on six chains including Ethereum, Solana, Mantle, Polygon, Sui, and Aptos.

When measured purely by tokenized securities, according to Dune Analytics, the market value of tokenized securities, including bonds and investment-grade bond ETFs, has been steadily increasing since February 2023, with a current market value exceeding $968 million. The leader is the Wall Street giant BlackRock, which recently joined and has a market value of $450 million, accounting for 45% of the total market value of tokenized securities. Ondo ranks second with a market value of $303 million.

Can BlackRock's BUIDL fund achieve real-time settlement? Why is this a significant step for the industry?

Key Tokenized Products of Ondo Finance

Ondo Finance announced the launch of tokenized bonds in January last year, allowing stablecoin holders to invest in US government bonds and investment-grade corporate bonds through their tokenized funds. Currently, there are two products available for selection: OUSG, suitable for professional investors, investing in US government bonds with a current yield of 4.96%, and USDY, which can be purchased by non-US residents, offering an annual return of 5.2%, backed by short-term US government bonds and bank deposits.

OUSG Investing in BlackRock Funds

OUSG, established for professional investors holding a large amount of stablecoins, initially invested in BlackRock iShares ETFs with the code SHV. Following BlackRock's launch of its first tokenized fund on the public Ethereum blockchain, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), OUSG transferred most of its assets to BUIDL, with the remainder diversified into BlackRock Federal Fund TFDXX, bank deposits, and USDC for liquidity purposes.

The minimum investment amount for OUSG is $100,000, with assets under management currently at $215 million. The management fee is 0.2%, with 0.15% paid to BlackRock for fund expenses.

USDY Tokenized Notes

In August last year, Ondo Finance introduced USDY, a tokenized note collateralized by short-term US government bonds and bank deposits. USDY is available for non-US individuals and institutional investors, with a minimum purchase amount of only $500, transferable on-chain within 40-50 days of purchase.

USDY represents debt issued by Ondo USDY LLC, a Special Purpose Vehicle fully owned by Ondo Finance, managed by a board of directors including independent directors, aimed at maximizing bankruptcy isolation. Partners include Morgan Stanley, StoneX, responsible for holding short-term US government bonds, while First Citizens and Coinbase Prime provide bank deposits and cash equivalents, accounting for less than 0.01%.

USDY can be invested in USDC and USDT, with wire transfers available for amounts exceeding $100,000. USDY supports Ethereum wallets like Metamask and multisignature, but does not support custody accounts such as Coinbase or Binance.

Collateral Loan Protocol Flux Finance

Ondo Finance also introduced the collateral loan protocol Flux Finance, which essentially moves the US government bond repurchase market to the chain, demonstrating decentralized, global, and transparent characteristics.

With the recent trend of re-pledging, Ondo Finance also announced a partnership with ether.fi to launch the USDY-WEETH liquidity pool on CurveFinance.

These applications on the chain allow their tokenized funds to have broader revenue and utility.

Is USDY a Stablecoin?

While USDY is listed as a stablecoin on CoinMarketCap, it does not have the effect of anchoring a fiat currency. USDY has a floating interest rate adjusted monthly by Ondo, automatically compounding the yield, implying an incremental increase in the USD value of minting and redeeming USDY every day. This means that USDY's price should theoretically appreciate at a rate of 5% annually, assuming the yield remains unchanged, with the current price of USDY at $1.04.

However, Ondo Finance also compares USDY with traditional stablecoins on its website, including bankruptcy isolation and the crucial interest issue. Stablecoin issuers like Tether and Circle invest US dollar assets in US government bonds and bank deposits, generating significant interest in the high-rate environment of recent years. However, these profits flow directly to the stablecoin issuers. The market leader USDT's issuer Tether achieved a record profit of $4.52 billion in the first quarter of this year, with around $1 billion in profit coming from held US government bonds.

Ondo Finance emphasizes that post-profit deductions are directly distributed to investors, with an annual yield as high as 5%. USDY claims to be exempt from issuance under SEC's Reg S regulation, fully compliant but not available for US investments.

Governance Token ONDO

ONDO Riding the RWA Train to a Surge

According to Crunchbase, Ondo Finance investors include Pantera Capital, Founders Fund, Coinbase Ventures, and Tiger Global, with the first token issuance of ONDO conducted on Coinlist in July 2022, serving as voting power for Ondo DAO and Flux Finance governance.

ONDO finally unlocked circulation on January 18 this year, and recently rode the wave of Real World Assets (RWA), surging over 14 times since January.

However, ONDO is currently only used for governance tokens and lacks other practical applications. It appears more like investors are willing to buy ONDO based on their optimism about the future of Ondo Finance as a company, as seen through the fervor of its ICO fundraising. Despite the Terra crash, ONDO attracted 18,000 people to participate, raising a total of $10 million, with no official announcement of the ICO issuance price.

With the actual circulation accounting for only 13.9% of the total token supply, this is one of the main reasons for the token price being easily inflated, so investors are advised to DYOR and manage risks effectively.

The Block Founder's Negative View on ONDO

The Block founder Mike Dudas recently expressed a more negative view on ONDO, citing conversations of popular investors on Twitter praising ONDO, mainly focused on the good marketing of the collaboration with BlackRock. Through the extremely low circulation, they made investors on Coinlist feel profitable and reduced direct dumping behavior.

Dudas believes that Ondo Finance's self-proclaimed security approach does not completely avoid regulatory risks and will ultimately end in tears.

The Block founder Mike Dudas: Ondo will end in tears