What Is Ondo Finance and Its ONDO Token: Best Guide

Published: February 19, 2024 | Last Updated: February 18, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

In this post, I will explain what Ondo Finance is and how it works. I will walk you through the different entities that make up the Ondo ecosystem and where $ONDO, the token, comes into play. We’ll also take a look at the ONDO’s fundamentals and how it scores across dimensions such as team expertise, momentum, product, and tokenomics. Let’s dive in.

what is ondo finance

What is Ondo Finance?

At its core Ondo Finance is a company that facilitates the tokenization of real-world assets (RWAs) and builds software to help them gain traction.

Unlike other RWA cryptos, Ondo Finance is not a blockchain.

You should think of it more like Tether, the company that issues the USDT stablecoin onto blockchains.

In a similar manner to how Tether brought the US dollar onto blockchains in the form of the USDT stablecoin, Ondo Finance is bringing onboarding highly liquid financial securities such as US treasury bills. 

What are tokenized real-world assets? 

An RWA is anything with an issuer outside of a blockchain.

Stocks, bonds, ETFs, Treasuries, and commodities are all examples of real-world financial products. 

The token is created through actual legal agreements that establish the rights of the token holder and ensures regulatory compliance in contrast to Bitcoin or ETH. 

RWAs first became known as securitized tokens and were launched on the tZero exchange in 2018. But this didn’t deliver the main benefits of blockchains such as:

  • Transparency
  • Reduction in reconciliation costs
  • Automatic real-time settlement

The first RWAs were stablecoins like USDC and USDT.

These tokens are created by off-chain issuers where legal agreements establish the rights.

They have the best product market fit. 

Ondo Finance’s focus is on expanding the accessibility of assets from traditional finance, especially treasuries and bonds. 

Let’s take a look at Ondo Finance’s product to date.

Ondo Finance products

The company offers three tokenized products and one protocol at the time of writing. 

  1. OUSG for US treasuries
  2. OMMF for money markets
  3. USDY, a yield-bearing stablecoin
  4. Flux Finance, a decentralized lending protocol

All three of Ondo’s tokenized products are permissioned meaning you need to go through a verification process to stay compliant with  Know-Your Customer (KYC) and Anti-money Laundering (AML) regulations.

1. OUSG

The Ondo Short-Term U.S. Government Bond Fund (OUSG) is a token representing Blackrock’s short-term US Treasuries ETF. 

In case you are living under a rock, Blackrock is the world’s largest asset manager, with more than $9 trillion in assets. 

OUSG tokens are aimed at whales, institutional investors, and crypto DeFi protocols because the minimum purchase is $100,000. 

People have bought $115Mn worth of OUSG at the time of writing. 99% of it is represented as an ERC-20 token on Ethereum and there are only 47 holders with 3 of them owning 50% of it. One of those is the Flux protocol.

OUSG holders
Source: Etherscan.io

The second largest holder is Flux Finance, a borrowing and lending platform that accepts OUSG as collateral. We’ll talk about Flux soon. 

Pricing

Ondo Finance takes a 0.15% commission which is reasonable and you are going to pay another 0.15% to Blakcrock and up to 0.15% to other intermediaries such as service providers..

2. OMMF 

The second product is similar to the first except it offers exposure to U.S. money market funds via Blackrock. 

A money market fund is a type of mutual fund that invests in short-term, low-risk securities, such as Treasury bills, certificates of deposit (CDs), commercial paper, and short-term corporate debt.

These funds are designed to provide investors with a relatively safe place to park their cash while earning a modest return that typically exceeds that of a standard savings account.

At the time of writing the product has not launched yet but it too is aimed at large investors with a minimum investment of $100,000.

3. USDY

USDY is similar to a stablecoin backed by treasury bills and bank deposits.

You can think of it as a competitor to USDT and USDC which are the two largest stablecoins by market cap.

The two biggest differences are  that:

  1. Unlike USDT, USDY shares the yield it earns with you. For example, the interest rate on a 6-month treasury yield is 5%. Tether claims this as revenue and it is the reason why Tether recorded a record-breaking $2.85B in profits in the last quarter of 2023. On the other hand, USDY holders can claim that yield for themselves with Ondo Finance only taking a 0.23% cut. 
  2. It’s not a stablecoin as it accrues value through its yield. So its price will keep changing over time. Think of it like a tokenized note that represents ownership of interest-bearing assets.

For comliance reasons, USDY is only available to those living outside the United States.

However, USDY does come across as superior to USDT and new blockchains hear this logic and are partnering up with Ondo Finance to offer USDY to their users. 

For example, Ondo has a strategic partnership with Mantle a blockchain that has launched mUSD, a wrapped version of USDY. 

usdt vs usdy
USDT vs USDY. Source: blog.ondo.finance

4. Flux Finance

The Flux Finance protocol is a lending and borrowing platform that is a fork of Compound V 2 (see What is Compound Crypto).

Lenders can earn a yield by offering USDC, DAI, USDT, and FRAX stablecoins and borrowers need to put up OUSG as collateral to borrow them.

When you deposit OUSG as collateral you get fOUSG in return. 

This is a common practice amongst lending protocols.

Compound does this too with its cTokens. For instance, if you deposit ETH you get cETH etc.

But where Flux differs is that it has made the fOUSG tokens permissioned meaning you can only transfer them to another KYC’d entity. 

This is merging the efficiency and transparency of blockchains with the requisite compliance for real-world assets. 

When I checked Etherscan there were only 14 wallets that had offered collateral to Flux with 90% of  OUSG coming from one wallet which seems strange.

I have asked the governance team why that is and will let you know if they answer. 

Flux Finance was developed by Ondo Finance but was sold to the Ondo Foundation.

This is probably a good time to understand the different entities in the Ondo ecosystem

Ondo ecosystem

1. Ondo Finance

First, you have Ondo Finance Inc. and its subsidiaries.

This is a for-profit company that generates profit by tokenizing traditional financial assets and bringing them onto blockchains.

They also build apps that facilitate the adoption of such assets like how they built Flux.

Another example of an app they built is the Ondo bridge which allows you to move said assets from one blockchain to another.

Ondo takes a cut for managing the issuance when you buy one of their products.

The company has raised $24 million from notable funds such as Peter Thiel’s Founders Fund, Coinbase Ventures, Pantera Capital, and others.

They disclose how much they make from UOSG in their attestation reports which you can find on the OUSG page ($700K in 2024).

2. Flux

Flux is a DeFi protocol.

It just works with smart contracts and now that the code is built humans aren’t supposed to be involved.

Of course, humans still need to set parameters such as what collateral to accept, what interest rates to set, and so on.

In crypto, this process is managed by a DAO, a decentralized autonomous organization. 

Which brings us to the Ondo DAO and its ONDO token.

3. Ondo DAO

Users who hold ONDO tokens can vote on proposals.

ONDO tokens were issued in mid-2022 and 2% were sold to 18,000 individuals through Coinlist.

Then in January 2024, the ONDO governance token holders voted to unlock a small proportion of tokens which is what are being traded on the market today. 

Out of a total supply of 10 billion, only 14% is in circulation.

The rest of the tokens will be released yearly over 5 years. 

Ondo token allocation

4. Ondo Foundation

Since the DAO is not a legal entity its physical representation in the real world is the ONDO foundation.

A foundation typically manages stuff such as the brand assets and pays developers (Ondo Finance) to build stuff. 

Is ONDO a good investment?

Look, the token is trending on social media. It has the largest market cap out of all RWA projects and RWAs are especially hyped this season as it offers the prospect of bringing a $10 trillion market onto blockchains.

However, ONDO, the token only bestows voting rights for decisions related to Flux Finance.

Ondo Finance, the company, and its investors are going to make loads of money and become immensely rich.

But as an ONDO token holder, you don’t get any of that upside. 

But if $ONDO is not valuable why do other governance tokens have value? For example, MakerDAO’s MKR token is valued at $2Bn at the time of writing.

The counterargument here is that MKR has utility beyond voting rights.

MKR is used to pay stability fees and collateral liquidations.

This guy goes deep into valuing MKR and explains why you should consider MKR as a commodity. It’s a good read if you want to fry your head. 

But that is not the case with $ONDO. At least for the moment.

Personally, I am not convinced that $ONDO is valuable. But I see how it could continue increasing in price as most people trade what is trending.

And ONDO and RWAs are trending. 

Infographic Ondo finance

Ondo Assessment

To help decide if I want to invest in ONDO I scored Ondo across the following dimensions. Here is my evaluation.

  1. Team: 90%
  2. Product: 90%
  3. Tokenomics: 35%
  4. Momentum: 50%

Below you can find an in-depth analysis along with the scoring methodology I use and the assigned weights.

Ondo team assessment

Team Weight Score
Are the founders legit with related experience? ✔️ Yes. The CEO of Ondo Finance, Nathan Allman, has 5 years of experience in Finance under his belt. The COO brings the grey hair to the team whereas the rest of the team is fairly young purely judging this by their profile pics. Check out the team here. 65 65
Have they built Web 3 projects before? ✔️ COO worked on Talos, a company enabling institutions to trade digital assets. CEO headed the digital assets division at Goldman Sachs. The rest of the Ondo team has work experience with other crypto projects such as Maker, Bridgewater, and Millennium. 5 10
Did they do an exit? No 5 0
Can you find legit profiles on LinkedIn? ✔️ Yes 5 5
Did they raise funds? ✔️ Their series A raised $24Mn and was led by Peter Thiel's Founders and Pantera Capital. Other notable names are Coinbase Ventures, GoldenTree, Wintermute, Steel Perlot (Eric Schmidt), Tiger Global, and Flow Traders. I have marked this as a good thing because of the network for potential partnerships that these names will offer. More details about Ondo investors here 10 5
How long have they been around? Ondo Finance, the company, launched in 2021 but the ONDO token was launched in January 2024. The token has not had enough history to prove itself yet. 5 0
Public appearances through Interviews/podcasts ✔️ Yes 5 5
Overall team score 90% 100 90

Ondo Finance Product Assessment

Product Weight Score
Is it easy to understand what they do? ✔️ Yes 5 5
What is it? - A company that facilitates tokenizing real-world assets. It builds protocols like bridges and manages the issuance. It's not a blockchain itself. -
Is there a demand for their product? ✔️ Not guaranteed but people are buying their tokens 25 25
Is there a use case? ✔️ Yes, they make it easy to invest in RWAs on the blockchain 20 20
How big is the market? ✔️ In the trillions and global apart from USDY which is for non-US people only. OUSG and OMMF require a minimum $100K investment. Plus you need to be willing to KYC to own those assets. 10 10
Is it being used? ✔️ Yes it has $180Mn TVL 5 5
Github activity - N/A 0 0
Has the product launched? ✔️ Yes they have launched three products that securize t-bills and money marketsin addition to the Flux protocol , a borrowing and lending platform 5 5
Does it have a strategic moat? No, anyone can do it. It's all about execution and first-mover advantage. 5 0
Is it focused? ✔️ Yes it has a clear focus on tokenizing RWAs 10 10
Is the website easy to understand for non-crypto visitors? ✔️ Yes you can understand what they are saying 5 5
Do they have a proof of concept? ✔️ Yes the 3 products are examples of this 5 5
Is the UX good? ✔️ Yes, the website is easy to navigate. I did not test out purchasing any of their products as you have to KYC. 5 0
Is it already being done? - There are many RWA projects but ONDO has the largest market cap according to Coingecko - -
At what stage is the product? - They are all recent with OUSG having the most TVL - -
How does it create value? - Brings RWAs to the blockchain. Nuff said - -
How does the project generate revenue? - The company generates revenue through fees but none of these accrue to ONDO holders. - -
Overall product score 90% 100 90

Ondo Tokenomics

Tokenomics Weight Score
Why is the coin valuable? This is a big red flag. $ONDO only gives voting rights to governance decisions about Flux finance. ONDO finance the company will make a lot of money. As an $ONDO holder, you don't get to participate in any of that upside. 45 0
Did they do a pre-mine? - Yes, they issued 10 Bn ONDO tokens 13% went to investors and 33% to Ondo Finance. - -
Is supply fixed or inflationary? - Fixed - -
Was it a fair launch - Fair launch means it should be equitable, transparent, and open to the public. The last two are satisfied but I wouldn't say 2% public allocation is equitable - -
Circulating / total supply 14% 5 0
Token release schedule ✔️ Yearly over 5 years 10 10
Are there incentives to reduce or lock supply? No 15 0
How many tokens ✔️ Only $ONDO for voting. Then each of their products will have its own token. This is straightforward and not confusing so I consider it a positive thing 5 5
How much upside is left: market cap vs industry size ✔️ $400mn market capitalization vs bilions: very low 20 20
Is it listed on major exchanges - Yes - -
Overall tokenomics score 35% 100 35

Ondo Token Price Momentum

Momentum Weight Score
Is it trending on social media? ✔️ Yes, Lunarcrush shows relatively high social dominance 20 20
Is the market cap low compared to similar projects? No, it has the largest market cap out of all RWA crypto. And it's just launched 50 0
What is the crypto market like? ✔️ Bullish 10 10
What is the sentiment for the sector this crypto focuses on ✔️ RWAs are very hot right now 20 20
Are they marketing heavily? - No evidence to suggest they are - -
Overall momentum score 100% 100 50

References

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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