OUSG review: how does Ondo Finance tokenize U.S. Treasury bills

One of the world's most famous and most prominent banks, JP Morgan, announced plans to issue its own tokenized assets, which provide a lot of advantages for investors. For example, low costs, ease of transferring funds between individuals and companies, and accessibility for virtually any user.

However, some companies have already issued their own tokenized versions of securities: one of them is Ondo Finance, the issuer of the OUSG token.

What is OUSG?

OUSG is essentially a tokenized version of an ETF on short-term U.S. Treasury bills. A subsidiary of Ondo Finance called Ondo Capital Management is responsible for issuing (issuing) the OUSG token.

This token is issued on the Ethereum blockchain by the ERC-20 standard and, according to CoinMarketCap, is available only in this network; that is, it has no smart contracts in other networks or "wrapped" analogs. However, the official Ondo Finance website states that, in addition to Ethereum, the OUSG token is supported on the Solana and Polygon networks.

The OUSG token is a stablecoin, only its rate is not linked to the U.S. dollar, like Tether (USDT) or USD Coin (USDC), but to the value of an ETF on short-term U.S. Treasury bills. It is important to clarify here that stablecoins do not necessarily have to be backed by currency: their exchange rate can be pegged to any asset, such as gold, like PAX Gold (PAXG), and even other cryptocurrency (wrapped tokens like WBTC or WETH would be prime examples). Nevertheless, OUSG's reserves consist of USDC and USD in addition to securities — this was done to increase liquidity in the market.

OUSG was issued in 2021 along with two other "stock" tokens — OSTB and OHYG. In the same year, the Ondo Finance team launched a protocol of the same name, through which the issuer issues stablecoins and provides their holders with income from deposits in digital assets. Ondo Finance's first products were the Ethereum blockchain-based structured finance protocol Ondo Vaults and the Liquidity-as-a-Service (LaaS) platform. Both protocols were later combined into one structured product called Ondo V1, and the team managed to raise over $200 million in liquidity.

However, in 2022, amid the general decline of the crypto market and a significant drop in returns in the decentralized finance market (DeFi), the Ondo Finance team was forced to shut down the Ondo V1 protocol. Instead of developing Ondo V1, the company focused on other protocols, such as Ondo V2, which will launch in early 2023 and include Ondo tokenized funds. It is part of Ondo V2 that the OUSG stablecoin is part of.

What is the OUSG token used for, and what are its features?

OUSG is one of the key crypto assets in the Ondo Finance ecosystem. Owners of the OUSG stablecoin gain ownership of a stake in the Ondo fund. At the time of writing, this was the only feature of OUSG tokens.

According to data taken from Ondo Finance's official website, a significant portion of the OUSG portfolio is managed by the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) investment fund, while another smaller portion of it is backed by BlackRock FedFund (TFDXX) securities, bank deposits and, on top of that, the USDC stablecoin.

An investor can get the OUSG token in two ways:

1. Contribute USDC tokens and receive an OUSG stablecoin for an equivalent amount — this would be an issuance. However, this can only be done by users who have obtained institutional investor status, and the minimum contribution amount is 100,000 USDC. In addition, the investor will need to undergo a verification process as per the KYC/AML policy.
2. Buy already issued OUSG on the market for USDC or other cryptocurrencies. However, according to CoinMarketCap services, as of April 2024, there are no available markets for the OUSG token in the DeFi environment. The point is that acquiring and transferring a token in a decentralized environment is also possible only through smart contracts verified by the Ondo fund. This makes OUSG significantly different from all other stablecoins, such as USDT, PAXG, and the like, which can be freely transferred from one user to another.

What can you expect from OUSG in the future?

According to CoinMarketCap, as of April 2024, OUSG issuance amounted to only about 260,000 tokens, indicating a relatively low demand. Additionally, there are still no trading pairs on both centralized and decentralized crypto exchanges.

However, given that TradFi assets are gradually appearing in tokenized form on the DeFi market, this could attract a mass of users, including large ones, from the traditional financial sector in the future. The RWA market in the crypto segment has reached over $6.5 billion TVL (sum of assets locked in protocols), according to DeFi Llama as of April 2024, and this figure has grown more than 8x in the last year.

OUSG is a versatile tool for investors who are used to traditional financial assets but want the benefits of blockchain technology and cryptocurrencies. Tokenization on blockchain has made many conventional financial sector assets available to institutional investors who prefer personal control over assets rather than holding them on exchanges.

Since the beginning of 2023, OUSG has brought investors more than 5% returns. ETFs on short-term U.S. Treasury bills, to the value of which the OUSG stablecoin is linked, are a more conservative instrument that is an excellent alternative to highly volatile cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Solana (SOL) and many others.