Ondo (ONDO) — combining TradFi and DeFi
Traditional financial market participants are increasingly interested in the DeFi ecosystem, and large companies such as BlackRock and JP Morgan are already working on products that combine the TradFi and DeFi markets.
What is Ondo?
Ondo or Ondo Finance is an American blockchain platform for issuing tokenized securities. Ondo is backed by large and globally recognized managers, service providers, and auditors such as:
- BlackRock,
- PIMCO,
- Goldman Sachs,
- Quantstamp,
- Bridgewater,
- Maker and others.
The Ondo protocol was launched in 2021. Its team aimed to create financial products for the U.S. market, such as treasuries and money market funds, but accessible to the vast Asian market.
What problem does Ondo solve, and how does the protocol work?
One key problem in the stock market is the lack of broad access for users. In order to use the services of stock exchanges, especially at the institutional level, one must go through complex registration procedures and meet all the requirements imposed by trading platforms and regulators. All this makes financial products inaccessible to a wide range of people.
Ondo Finance aims to solve this problem by utilizing distributed blockchain technology. Let's take USDT as an example. The USDT stablecoin was the first successful implementation of tokenization of a real asset, the U.S. dollar. The tokenization of fiat currency made it possible to purchase, store, and trade the equivalent of USD on the blockchain without needing banking services.
The situation is the same with the tokenization of stocks and other assets: to purchase a tokenized asset, users do not need to register on an exchange and go through all the necessary complex procedures. Instead, they can simply start a cryptocurrency wallet, fund it with cryptocurrency, and purchase tokenized assets through a decentralized platform.
Ondo combines the capabilities of traditional (TradFi) and decentralized finance (DeFi) markets. With Ondo's protocols, retail and institutional investors can tokenize securities such as U.S. Treasuries. The Ondo team bridges the gap between the traditional financial market and the blockchain industry.
This approach solves another problem associated with traditional stock exchanges' complex bureaucracy — the difficulty of transferring and selling securities. Every financial transaction on stock exchanges is accompanied by considerable costs. In addition, difficulties may arise if an investor needs to transfer assets from one exchange to another.
With tokenized assets, everything becomes much more straightforward, and costs are reduced many times over:
- The investor keeps all digital assets in his wallet, so there is no need to pay custodial fees to depositories;
- There is no need to transfer assets anywhere: if an investor needs to sell a token, he just needs to choose any available decentralized exchange and make an exchange (swap);
- Investors do not need to have any status and register an account on an exchange to exchange and store tokens.
Ondo ecosystem
As of April 2024, Ondo provides two ecosystem products:
- Ondo Finance, a protocol that enables the issuance of real-world tokenized assets (RWAs);
- Flux Finance is a decentralized lending protocol with RWA support.
Ondo Finance is an issuer of tokenized assets. This means that it allows users to deposit real-world assets (RWAs) and, in return, receive their digital equivalents — tokens. Redemption is also possible: burning tokens in exchange for RWAs. This process is similar to creating and burning stablecoins like USDT and USDC.
So far, only two tokenized assets are available on Ondo Finance:
- U.S. Dollar Yield (USDY), a stablecoin whose reserves consist entirely of bank deposits and U.S. Treasuries;
- U.S. Treasuries (OUSG) — tokenized Treasury bills, which are allocated between the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) and BlackRock FedFund (TFDXX) portfolios, as well as bank deposits and USD Coin (USDC) Stablecoins.
The second product, Flux Finance, is a liquidity lending protocol through which users can borrow against cryptocurrency and make deposits to generate income. BlackRock and Coinbase provide Flux Finance's liquidity.
Five popular stablecoins are available on the platform:
Ondo protocol token
ONDO is a platform management token that acts as a core asset and plays a significant role in the Ondo ecosystem, including Flux Finance and Ondo Finance. ONDO token holders can participate in decision-making on the development of Ondo's essential products and areas of focus and make their own suggestions for improving the ecosystem.
ONDO was issued on the Ethereum blockchain network as an ERC-20 token and, as of April 2024, is available only on this network. The token is traded on decentralized exchanges such as Uniswap and Balancer, which means that ONDO holders, in addition to managing it, can also become liquidity providers and generate revenue from it.
As of April 2024, 1.38 billion ONDO tokens have been issued out of a maximum possible 10 billion. However, according to CoinMarketCap, the token has no-issuance limit (cap), which could mean that additional tokens could be issued.
What's in store for Ondo: a look into the future
One of the largest banks in the U.S., JPMorgan, plans to launch more tokenized products in 2024. Meanwhile, BlackRock, the world's largest investment company, unveiled its plans to create the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) tokenization fund based on the Ethereum network, and that it will move into the RWA sector, which VanEck predicts could reach $16 trillion by 2030 in an optimistic scenario.
This will drive the growth of leading DeFi protocols related to the TradFi and RWA markets. Ondo is one of the leading representatives of this segment in the crypto industry, so the development of the tokenized assets market is likely to affect the growth of its native token ONDO as well, all of which investors can catch shortly.
