Ondo US Dollar Yield (USDY) stablecoin: high-yield deposits in digital assets

Such products simplify transactions and make them much cheaper than, for example, bank transfers and make financial services available to more users. According to the World Bank, around 1.7 billion people worldwide lack access to essential financial services such as deposits and lending.

What is Ondo US Dollar Yield?

Ondo US Dollar Yield (USDY) is a stablecoin linked to the value of the Ondo Finance financial instrument, backed by reserves from traditional assets and issued in February 2024 on the Ethereum blockchain as an ERC-20 token. As of November 2024, the Ondo US Dollar Yield token also exists on blockchains:

Ondo US Dollar Yield reserves consist of US Treasury bonds and bank deposits, making this stablecoin very similar to the leading tokens in this segment — Tether (USDT) and USD Coin (USDC).

Ondo USDY LLC issues USDY token. The Ondo US Dollar Yield stablecoin issuer has its own asset management division. This division creates and manages blockchain-based tokenized products. One of these products is Ondo Finance, which provides services similar to bank deposits; instead of currency, stablecoins are used. For example, issuers Tether and Circle (USDC) do not offer similar services to their customers.

How does Ondo US Dollar Yield work, and where is it used?

Users can purchase Ondo US Dollar Yield tokens on any available decentralized (DEX) or centralized (CEX) exchange and directly from the issuer if the option is available in the user's region. This is due to the complexities of regulation, as in some countries, services cannot provide financial services to customers without special licenses.

Purchased USDY tokens can be deposited 5% annually through the official Ondo US Dollar Yield protocol.

In this way, the USDY stablecoin provides investors access to high-yield savings products that offer a higher interest rate than bank deposits in the United States. For example, as of November 2024, UFB Direct offered the highest deposit rate among central banks at 4.31%. And the lowest rates are as low as 0.01% — such rates are offered to customers by Wells Fargo and Bank of America.

Ondo US Dollar Yield tokens are available to institutional and private investors, except for the United States (due to restrictions imposed by US regulators) and regions under sanctions. To obtain USDY tokens directly from the issuer, the buyer must go through KYC/KYB — Know Your Customer and Know Your Business (a similar verification procedure for a private user and a company).

It is also worth noting that Ondo US Dollar Yield differs from the usual stablecoins like USDT and USDC, which are tied to the value of the US dollar. The fact is that the USDY stablecoin is more akin to tokenized mutual funds (mutual funds) in nature. The price of the Ondo US Dollar Yield token grows over time as the Ondo USDY LLC unit successfully manages its fund's assets.

In this way, users and investors of Ondo US Dollar Yield can earn income from deposits and by growing the value of the USDY token itself. If the growth trend of the Ondo US Dollar Yield stablecoin continues, the final yield from an investment in the USDY token could exceed 10%.

Ondo US Dollar Yield market data

As of November 2024, the number of USDY tokens circulating on the market is 423 million, with a capitalization of $452 million.

Stablecoin Ondo US Dollar Yield has relatively high volatility, which is atypical for this asset. After the token was released on exchanges in February 2024, its price dropped to $0.99. However, after that, the value of the USDY token rose in the long term while maintaining intense volatility.

The token returned to $1 a few days after listing and grew, reaching $1.07 by November 2024. Also, in March 2024, the price of Ondo US Dollar Yield jumped sharply to its all-time high (ATH) at $1.12. In recent weeks, the Ondo US Dollar Yield stablecoin price has fluctuated between $1.06 and $1.08.

Pros and cons of Ondo US Dollar Yield

In addition to the high-yield deposits offered by Ondo Finance's DeFi protocol, users get access to liquidity pools on decentralized exchanges, which allows them to add their USDY tokens to them and earn income from liquidity mining, as well as farming — depending on the availability of relevant products on a particular platform.

However, the Ondo US Dollar Yield has downsides as well. Like any other stablecoins, USDY can be subject to volatility risks. In addition, unlike, for example, USDT or USDC, USDY stablecoin is not pegged to the US dollar exchange rate. However, in a pessimistic scenario, investors have the right to reclaim their traditional assets from the issuer, for which they purchased USDY stablecoin as if it were still trading at its market price.

It is worth noting that according to CoinMarketCap, the USDY stablecoin rate fell below 1 dollar only once — after listing on exchanges. Then, the Ondo US Dollar Yield rate showed stable growth.