On-chain Wall Street: Ondo Finance connects TradFi and the encryption world

1. Market Background

The next wave in the blockchain world is not only about performance and throughput but also about how to deeply integrate real-world assets with decentralized finance. The RWA track is leading the transformation from technology to assets, enabling an unprecedented convergence between the on-chain ecosystem and TradFi. Currently, RWA has become the seventh largest category in DeFi, with a total locked value exceeding $12 billion.

U.S. Treasury bonds are one of the most liquid financial assets in the world. Their average daily trading volume has consistently remained at several trillion dollars, featuring extremely high liquidity and very low bid-ask spreads. Backed by the U.S. government, they have never experienced a substantive default and are regarded as a model of zero default risk. Their yields are seen in the industry as the risk-free rate, providing a reliable benchmark for the pricing of various assets and risk management.

The RWA track, with its unique value connecting the real economy, combined with U.S. Treasury bonds, has become the best paradigm for off-chain assets to innovate on-chain. Tokenized Treasury bonds not only inherit the core advantages of U.S. bonds but also incorporate the transparency, efficiency, and composability of DeFi, creating an unprecedented investment tool. It is expected that by 2030, the global tokenized non-liquid asset market will exceed $16 trillion, accounting for 10% of the global GDP. As of May 13, 2025, the market value of tokenized Treasury bonds has soared from approximately $1.39 billion a year ago to $6.89 billion.

Ondo Finance occupies a leading position in the tokenized U.S. Treasury market through its two flagship products, USDY and OUSG. These two products account for approximately 25% of the market share of all tokenized U.S. Treasury assets. Meanwhile, Ondo Finance's overall TVL continues to reach new highs, currently approaching $1.2 billion.

Against the backdrop of global inflation easing and interest rate differentiation, the demand for stable and highly liquid assets continues to rise, leading to the emergence of tokenized government bonds. Next, we will delve into the core competitiveness of Ondo Finance and its future development direction.

2. Overview

2.1 Project Introduction

Ondo Finance has launched three tokenized U.S. Treasury and bond products through large, highly liquid ETFs managed by asset management giants: U.S. Government Bond Fund (OUSG), Short-Term Investment Grade Bond Fund (OSTB), and High-Yield Corporate Bond Fund (OHYG).

• Market share: approximately 20%
• National debt product market value: $122,511,877
• Management Fee: 0.15%

2.2 Core Product Introduction

2.2.1 USDY

USDY is an interest-bearing stablecoin, with each USDY backed by short-term U.S. Treasury bonds and bank demand deposits. Holders automatically earn interest on the underlying assets without needing to participate in additional contracts or staking.

Introduction to the mechanism:

• Issuance and Minting: For institutions and qualified investors outside of the United States, minting and redemption can be done daily at net asset value, with a transfer lock-up period of 40-50 days after the first minting.
• Interest Rates and APY: As of April 2025, the target annual yield of USDY is approximately 5.2%, determined by the actual income of the underlying assets, updated and published monthly.

2.2.2 OUSG

OUSG is a transferable on-chain fund that provides holders with short-term U.S. Treasury exposure through custody at the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) and direct bond purchases, with a daily updated net asset value (NAV) to reflect the latest asset performance and fee deductions.

Mechanism composition:

• Underlying assets: Primarily invest in short-term U.S. Treasury bonds in BUIDL, as well as high-grade government bonds and GSE funds from other institutions.
• Fund structure: Ondo Capital Management is responsible for fund management, and holders obtain corresponding shares by minting/redeeming OUSG tokens.
• Price Release: Daily updates on on-chain price Oracle, supporting 24/7 instant investments and redemptions.

Fee Allocation:

• Management fee: annualized 0.15%
• Performance Fee: 0%
• Other fees: no subscription fee, redemption fee, or hidden fees
• Third-party service fee: The management fee of the underlying BUIDL fund is included in the above fees.

APY calculation formula and update rules:

• Annualized calculation based on the net income net value changes over the past 30 days (and 7 days)
• Updated once every business day

3. Key Mechanism: Connecting the "Last Mile" Bridge

3.1 Flux Finance

Flux Finance has built a collaborative transmission path for the industrial chain, introducing the liquidity of traditional assets into a multi-chain environment, promoting the secondary market trading or liquidity provision of stablecoins and RWA tokens on DEXs or aggregators.

Technical Foundation:

• Utilizing Layer2 networks and Stellar's cross-border settlement capabilities
• Ondo Chain provides native support for RWA compliance verification network.
• Ondo Global Markets builds an on-chain custody and cross-chain trading platform.

Upstream: Issuer and Management End

• TradFi: compliant custody of high-quality assets such as US short-term Treasury bonds
• On-chain finance: Bringing the risk-free interest rate of real-world assets on-chain by minting USDY and OUSG.

Midstream: Value Added Mechanism

• Fund: Users can exchange OUSG through Flux Fund with a lower threshold.
• Lend: OUSG becomes the only high-quality collateral available for pledging, enabling refinancing and leveraging of income certificates.

Downstream: value transmission mechanism

• Convey value to the entire Web3 ecosystem and provide stable low-cost capital for various applications.
• Continuously optimize its governance and compliance structure to adapt to changes in the regulatory environment and market demand.

3.2 Ondo Chain

Ondo Chain is a blockchain network specifically designed for real-world assets, positioned as the underlying infrastructure for servicing institutional-level financial markets.

Core components:

• Native support for real-world assets
• "Permissioned Model" in the verification mechanism
• Ondo Bridge cross-chain bridge tool
• Mandatory KYC process

Potential defects:

• The licensing verification mechanism may lead to an increase in centralization.
• Security needs to be strengthened.

3.3 Ondo Global Markets

Ondo Global Markets is a tokenization platform aimed at bringing TradFi assets on-chain, providing global investors with 24/7 on-chain trading channels.

Key part:

• Ondo Chain as the underlying infrastructure
• Ondo Bridge enables on-chain asset transfers.
• Collaborate with the TradFi institution ecosystem

Advantages:

• Provide unprecedented convenience for user investors
• Simplify TradFi processes, improve efficiency

Potential defects:

• Not yet fully integrated with TradFi
• Weigh the risks and rewards to ensure system stability.

4. Mechanism Comparison

Ondo Finance connects TradFi and the encryption world through three key mechanisms:

• Ondo Chain provides native support and compliance verification for high-grade assets.
• Ondo Global Markets aggregates retail capital into a unified collateral pool
• The fToken mechanism on Flux Finance realizes a closed loop of "deposit to earn interest, borrow to pay interest."

5. Summary

Ondo Finance has become the central hub for the on-chain transformation of real assets, bridging the entrance of TradFi and the exit of the encryption market. It is igniting an unprecedented liquidity revolution at the intersection of traditional finance and the on-chain world. In the future, with the continuous optimization of mechanisms, Ondo Finance will explore incremental space beyond imagination in the process of digitizing real assets.

6. Highlights Summary

1. RWA empowers the on-chain ecosystem: Tokenizing US Treasury bonds to introduce a "risk-free interest rate" benchmark for DeFi.

2. The three major mechanisms work together to release liquidity: bridging the "last mile" between TradFi and the encryption world.

3. Small users and institutions run in parallel: Breaking down high threshold barriers while meeting institutional-level compliance and security needs.

4. Instant, round-the-clock trading and settlement: Building efficient and transparent on-chain financial infrastructure.

5. 16 trillion blue ocean pioneers: Deeply integrating traditional financial assets and on-chain innovations to pave the way for unlimited incremental space for the digitization of real assets.