Ondo Finance (ONDO): Analysis of the RWA star

The Big Whale's opinion 🐳

The real-world asset tokenisation (RWA) sector is one of the leading trends in the crypto market in 2024.

Ondo has enjoyed strong exposure after BlackRock launched its BUIDL tokenised fund, doubling its capitalisation to $1bn in ten days.

Ondo is the largest project belonging to the RWA niche to have a governance token (ONDO), making it a prime target for investors.

its attractiveness should not overshadow its emergence: around $200m in assets are currently managed by Ondo.

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Overview 🧬

Ondo is a protocol launched in August 2021, whose initial proposition was to improve returns for liquidity providers on decentralised exchanges such as Uniswap.

Faced with the declining attractiveness of returns in decentralised finance (DeFi) in 2022, the Ondo team chose to cease its previous activities to focus on the development of new products, introduced in January 2023.

Ondo's current main focus is the tokenisation of real world assets (RWAs). Ondo creates and distributes tokens on the blockchain that generate returns based on "tangible" assets (mainly US debt).

Currently, Ondo offers two specific tokens: OUSG, which offers tokenised exposure to short-term Treasuries, and USDY, backed by tokenised Treasuries and bank deposits.

Ondo has also launched Flux Finance, a decentralised lending and borrowing protocol whose governance is provided by its decentralised autonomous organisation (DAO) via its ONDO token (we detail how this works below)

Taken as a whole, Ondo's offering is aimed primarily at professional investors and DAOs that manage the finances of other decentralised finance protocols.

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Financing 💰

Ondo has raised a total of $46 million in three separate funding rounds.

The first round, a seed round, was held in August 2021 and raised $4 million. This fundraising saw the participation of well-known investors such as Pantera, Digital Currency Group, Genesis, and Coin Fund.

The second round, a series A, took place in April 2022, raising $20 million from a broader group of investors including, among others, Pantera, Founders Fund, Wintermute, Tiger Global, Flow Traders, and Coinbase Ventures.

Finally, a third round, in the form of a community sale, was completed in May 2022 on the Coinlist platform, during which Ondo raised a further $26 million.

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Team and community 👾

American Nathan Allman serves as founder and CEO at Ondo Finance. His career trajectory includes significant experience in blockchain, including a two-year position in the digital assets division at Goldman Sachs.

Justin Schmidt, as president and COO of Ondo Finance, also brings expertise from two years as a manager in the digital assets division at Goldman Sachs, followed by a role as head of strategy at Talos.

Ian De Bode, meanwhile, joined Ondo Finance as chief strategy officer at the end of March 2024, with previous experience as a partner in the digital assets division of consultancy McKinsey.

To sum up, Ondo Finance's management team benefits from strong experience and close connections with the traditional finance sector, a strength clearly highlighted on their website. However, its directors were not available to answer our questions despite our repeated requests.

Based in the United States (mainly in New York and the San Francisco area), Ondo Finance relies on a team of around twenty employees.

In terms of online presence and community engagement, the project enjoys a large audience with 178,000 subscribers on the X platform (ex-Twitter) and 49,500 members on Discord.

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Functioning ⚙️

Currently, Ondo issues two types of token.

The first, OUSG, is backed by short-term US Treasuries mainly from BlackRock's tokenised fund (BUIDL), a scheme analysed in depth by The Big Whale (read our investigation).

Ondo facilitates instant subscriptions and redemptions of OUSGs, an operation available 24/7, a significant advance on the traditional lead time of several days required to buy and sell fund assets.

Ondo's OUSG had an annual yield of 4.96% at the end of March. It is currently capitalised at $90 million.

The second token, USDY, meanwhile, is secured by tokenised Treasury bills and bank deposits. USDY had an annual yield of 5.20% at the end of March. It is currently capitalised at $100 million.

The interest generated by these underlying assets is reinvested, increasing the value of the tokens over time.

Ondo has also developed Flux Finance, a lending and borrowing platform similar to Aave or Compound (Flux is a fork of Compound V2) that can support both unauthorised crypto-assets (USDC, USDT, DAI and FRAX) and tokenised securities with transfer restrictions (OUSG).

To date, it is the only marketplace that meets these compliance standards, but its activity is still confidential (less than $15 million under management (TVL) and only $6 million in loans granted).

‍The ONDO governance token 🪙

ONDO token holders play an active role in Ondo DAO, the decentralised autonomous organisation that controls Flux Finance.

They can decide on the listing of new tokens, as well as changes to interest rate models. In addition, the DAO is responsible for its cash management and determines the strategy for issuing ONDO tokens to support the development of the Ondo ecosystem.

It is important to stress that the ONDO token is distinct from the products distributed by the company (OUSG and USDY). The token is only used to manage the governance of the Flux Finance platform and this has not yet been proven.

The total number of ONDO tokens is 10 billion, initially distributed as follows:

- 2% have been allocated to participants in the community sale on Coinlist.
- 52.1% are allocated to the growth of the ecosystem, potentially including future airdrops.
- 33% are reserved for the project team.
- 12.9% are earmarked for private investors.

The tokens allocated to the team and private investors are subject to a lock-in period of 12 months following the token's launch, meaning that distribution will begin from January 2025 (see timetable below).

The capitalisation of tokens available on the market is $900 million, but taking into account those that are locked in, it reaches $9 billion.

‍Regulations ⚖️

Creating products that comply with US laws and regulations entails certain restrictions.

As an example, an investor acquiring USDY directly from Ondo must wait between 40 and 50 days to receive their tokens, although interest accrual begins as soon as their deposit is processed. Tokens are then freely exchangeable between people in authorised countries after creation and do not require accreditation on the secondary market.

OUSG, meanwhile, is reserved only for Ondo-approved users (primary and secondary) capable of investing at least 100.000 dollars.

According to the head of a European company, the OUSG is a difficult asset to acquire for a project registered in Europe.

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What links with BlackRock? 🧐

Ondo was among the first projects to be allowed to acquire shares in its tokenised fund, for around $95 million.

It is therefore incorrect to say that BlackRock is backing Ondo, as many of the project's supporters would like you to believe, but the two structures are nonetheless business partners.

"Companies like Ondo are going to act as a distributor for BlackRock because the decentralised finance protocols are not going to interact directly with the asset manager," says an entrepreneur assessing in RWA. "It's simpler for BlackRock, which won't have to manage the compliance of the thousands of projects that will want exposure to its fund," he points out.

So, if Maker wants to put BlackRock tokenised bonds in its pool, there's a good chance the protocol will use Ondo's products.

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Potential customers 🤝

While Ondo doesn't disclose who its customers are, there are a growing number of projects aimed at providing returns from treasury bonds.

These include the giant Maker ($8 billion under management), which has held sovereign bonds in its treasury since 2022, and Angle ($34 million under management), which issues euro (EURA) and dollar (USDA) stablecoins.

More recently, French project Usual (which we revealed existed in mid-February) also wants to use RWAs to support the reserve of its USD0 dollar stablecoin.

So the potential is great for Ondo, but the competition is significant.

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Competitors ⚔️

There are many projects exploring the tokenisation of real assets, but Ondo appears to be one of the best placed due to its seniority.

Alongside it are Americans from Hashnote and Matrixdock, or Singaporeans from OpenEden. On the European side we can mention the Swiss of Backed Finance and the Germans of Midas, who have just raised 9 million dollars. A French player, Spiko, is expected to join them soon after receiving approval.

If Ondo is getting a lot of press, it's because it's the first major project in this ecosystem to have a governance token.

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Roadmap 📝

The project plans to launch a new token during 2024: OMMF.

OMMF is a tokenised money fund. The interest generated by the underlying assets will be paid directly to investors in the form of new OMMF tokens. This will enable OMMF to be a genuine stablecoin stabilised around one dollar. This project bears a strong resemblance to BlackRock's BUIDL fund

The Ondo Global Markets programme was announced in February 2024. The aim is to make it possible to buy and tokenise most of the assets available on the public financial markets directly from the blockchain.

Ondo Global Markets will accept customer orders via an API and support on-chain requests. The order will be executed by Ondo Global Markets on traditional trading platforms (more details here).

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Market analysis by Chadi El Adnani, Head of Content & Research at SUN ZU Lab 📈

The ONDO token has performed remarkably well since its launch earlier this year, recently reaching an all-time high of $1. Since BUIDL's launch, ONDO has seen average daily trading volumes of more than $100 million on Coinbase and Bybit, with its price doubling during this period.

Last week, Ondo Finance announced the transfer of $95 million in assets to BlackRock's new tokenised fund, BUIDL, to facilitate instant settlements for its own US Treasury-backed token, OUSG. Through these initiatives, Ondo Finance is strengthening its position as one of the leading players in the rapidly expanding real asset tokenisation (RWA) sector.

Where can you buy the ONDO token? 🛒

Only Coinbase offers the ONDO token among the major regulated exchange platforms in Europe. It can also be acquired on the decentralised exchange Uniswap.

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Conclusion 🧭

Ondo is one of the most advanced projects in the RWA ecosystem.

It has a highly experienced team drawn from the biggest names in finance.

If it is very attractive, it is mainly because it is one of the few to have a governance token and therefore the opportunity to gain exposure to it.

Listed on only one major platform (Coinbase), the token seems to have good potential for temporary appreciation when potential new listings are announced.

Ondo's various RWA products (which are highly relevant) stand out from its token, whose role is mainly limited to the Flux platform, which still has confidential activity.

The project seems overvalued ($9 billion in capitalisation if all tokens are taken into account) compared with its activity ($200 million in assets under management).

In the short term, Ondo nevertheless appears to be the main asset for those wishing to gain exposure to the RWA niche.

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