Ondo Finance is a tokenized real-world asset (RWA) platform created to broaden access to DeFi yields and cater to users with different risk preferences. It accomplishes this through a permissionless protocol that facilitates the creation of risk-isolated, fixed-yield loans backed by yield-generating crypto assets. Ondo Finance was co-founded in March 2021 by former Goldman Sachs employee Nathan Allman. ^[1]

Overview

Ondo is a protocol that facilitates the adoption of decentralized finance (DeFi) among mainstream investors by facilitating precise risk exchange. In a period of historically low interest rates, Ondo Finance aims to broaden DeFi adoption by offering risk-averse investors the opportunity to access DeFi yield with transparent and mitigated risk. At the same time, it enables DeFi-native investors to access higher potential returns. Ondo aims to democratize institutional-grade financial products and services for all. They see blockchain technology as key to enhancing the infrastructure and accessibility of financial offerings. Ondo believes in blending technical advancements with established practices from traditional finance, including investor safeguards, transparent reporting, legal compliance, robust product structuring, collaboration with top service providers, and excellent client support. To achieve this vision, Ondo operates an asset management division responsible for creating and overseeing tokenized financial products alongside a technology division focused on developing decentralized finance protocols. ^[1][2]

Products

Ondo Token Bridge

The Ondo Token Bridge facilitates seamless transfers of Ondo tokens across different blockchains. In collaboration with leading bridging technologies like Axelar and LayerZero, we have integrated cutting-edge multi-chain communication primitives and a novel Ondo risk management layer. This ensures that Ondo tokenholders can bridge Real World Assets (RWAs) safely and efficiently. ^[3]

Transferring assets across chains has historically presented significant security challenges. Building a system to support cross-chain bridging of RWAs requires robust security measures. Ondo addresses this challenge by leveraging established, battle-tested bridge infrastructure while adding a validation layer to all bridge transactions. ^[3]

Key features of the Ondo Token Bridge include security that scales with the bridged amount, utilizing proven bridge technologies, and a mechanism where bridged Ondo tokens are not locked in a smart contract on the source chain. Instead, they are burned on the source chain and re-minted on the destination chain, eliminating a common attack vector found in other lock-and-mint token bridges. ^[3]

Flux Finance Protocol

Flux Finance, initially developed by Ondo Finance, has been sold but remains part of their product portfolio. As a fork of Compound V2, it functions as a peer-to-peer lending protocol supporting permissionless and permissioned assets. Users deposit stablecoins to earn the supply APY, receiving fTokens in return, representing the right to reclaim deposited assets plus interest upon redemption. These yield-bearing assets have integrated into DeFi, enabling users to leverage them on protocols like Pendle or Penpie for layered yield strategies, potentially advancing the RWA space significantly. ^[4]

The central value proposition of Flux Finance lies in two aspects. Firstly, it allows users to earn supply-side APYs on stablecoins, catering to the liquidity demands of OUSG holders. OUSG holders can use OUSG as collateral, borrow USDC, and leverage up on OUSG, ensuring high utilization rates. Additionally, Flux Finance enables accredited investors to access leverage on risk-free assets, exploiting the difference between Treasury yield and borrowing rate. In contrast, ordinary users can access solid yields by leveraging their minted fTokens in DeFi. ^[4]

OMMF

OMMF is a USD-pegged security token backed by US money market funds, offering interest payments to holders in additional OMMF tokens. While limited to qualified purchasers and accredited investors, retail users can access OMMF through Flux Finance. Unlike OUSG, which appreciates, OMMF maintains a stable $1 value, redeemable on any business day. Interest is distributed daily in new tokens. This stability makes OMMF suitable for settlement and collateral in OTC trading and lending, facilitated by its 24/7 compatibility and instant subscriptions and redemptions, supported by small stablecoin reserves on-chain. ^[5][6]

ONDO

ONDO is the governance token for Ondo Finance and its Flux Finance protocol, empowering the user community to steer the company's direction. Token holders can make crucial platform decisions by suggesting and voting on updates. The token has a total supply of 10 billion and, initially, a pre-sale distributed the ONDO token to a broad community base. After being unlocked for trading, it swiftly became available on leading cryptocurrency exchanges. ^[7]

OUSG

OUSG (Ondo Short-Term US Government Treasuries) offers access to short-term US Treasuries with tokenized subscriptions and redemptions available 24/7. US Treasury bills provide a highly secure investment avenue with stable returns and ample liquidity. Widely acknowledged as the safest and most liquid investment choice, US Treasury bills are favored by investors seeking safety, stability, and liquidity. ^[8]

Currently, most of OUSG's portfolio is held in the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with the rest allocated to BlackRock’s FedFund (TFDXX), bank deposits, and USDC for liquidity needs. Potential future additions to the portfolio may include other US Treasury funds or direct investments in US Treasuries. OUSG shares are tokenized and can be transferred at any time. ^[8]

Rebasing

Rebasing adjusts the total token supply by multiplying the base number of tokens by a "rebasing factor." Rebasing is commonly used to promote price stability and distribute yield. It efficiently adjusts all token holder balances by introducing user "shares," akin to shares of stock, representing a claim on a percentage of the total supply of tokens. ^[9]

rOUSG

rOUSG represents a type of 'Wrapped' OUSG, where each rOUSG token corresponds to a certain amount of "regular" OUSG locked within a wrapper contract. For instance, if 100K USDC is invested into rOUSG, the OUSG tokens are directed to a wrapper contract instead of a wallet. This contract locks the OUSG, mints the equivalent amount of rOUSG, and sends it to the wallet. Conversely, redeeming rOUSG involves routing the tokens to the wrapper contract, burning them, and unlocking the corresponding OUSG tokens. These OUSG tokens are returned to the OUSG contract for burning, and the appropriate USDC amount is received. ^[4]

The total supply of OUSG comprises two types: ^[4]

• Wrapped OUSG: OUSG is locked in the rOUSG wrapper contract and serves as the 'reserve' for the issued rOUSG.
• Non-Wrapped OUSG: OUSG is not locked in the rOUSG wrapper contract.

USDY

The US Dollar Yield Token (USDY) is a tokenized note backed by short-term US Treasuries and bank demand deposits. This asset aims to grant non-US individuals and institutional investors direct entry to a fully compliant, interest-bearing, USD-denominated stablecoin. ^[6]

USDY offers a novel combination of stablecoin accessibility and yield generation. Its operation involves a meticulous process, including KYC onboarding, fund depositing, cohort assignment, certificate generation, and token minting. The redemption process is equally structured to comply with US laws and regulations. USDY differs from traditional stablecoins in several ways, including bankruptcy remoteness, yield potential, asset security, regulatory status, and third-party oversight. ^[10]

Compared to other Ondo products like OUSG and OMMF, USDY targets a different audience with distinct use cases and structural nuances. While OUSG and OMMF cater primarily to institutional investors with specific geographic and accreditation requirements, USDY is more accessible and offers different return and risk profiles. ^[10]

Partnerships

Fei Protocol

On November 24th, 2021, Ondo Finance and Fei Protocol announced a partnership with several cutting-edge DeFi protocols to enhance decentralized exchange liquidity. Through the Liquidity-as-a-Service ("LaaS") offering, protocols could transition away from traditional liquidity mining campaigns, deemed unsustainable and costly. Fei Protocol initially committed $50M to the program, later matched by $50M from partners, totaling $100M to be deployed over the next few weeks. The first vaults from Universal Market Access (UMA), Gro Protocol (GRO), and ShapeShift (FOX) were deployed on the same day, with NEAR (NEAR) set to launch in the coming days. ^[11]

Frax Finance

On December 27th, 2021, Frax's governance process approved a partnership with Ondo. This collaboration aimed to enhance Ondo's Liquidity-as-a-Service offering by utilizing $FRAX, provided by the protocol itself, as liquidity for token issuers. As per the proposal's design, a portion of the future algorithmic expansion of the FRAX stablecoin would be minted into Frax-as-a-Service vaults as required, with no upfront costs for participation from Frax. ^[12]

Angle & Paladin

On May 4th, 2022, the Angle community approved a partnership with Paladin to leverage Ondo’s Liquidity-as-a-Service offering. This collaboration aimed to utilize $agEUR as liquidity for $PAL. Angle became the pioneering project to utilize Liquidity-as-a-Service with a euro-pegged stablecoin, introducing the agEUR-as-a-Service (agEUR-aaS) offering to bolster liquidity on decentralized exchanges. This initiative complemented Ondo's existing Liquidity-as-a-Service program by enabling liquidity building in a Euro-denominated stablecoin. ^[13]

Polygon

On July 13th, 2023, Ondo partnered with Polygon Labs, a development team for Ethereum scaling on the Polygon protocols. The aim was to promote adopting institutional-grade products within the DeFi ecosystem. This collaboration united Ondo's expertise and cutting-edge technologies with the scalability and cost-efficiency of the Polygon PoS protocol, marking a step toward reshaping traditional financial markets. ^[14]