Asset Tokenization: The Future of Finance

Asset tokenization is becoming an important development trend in the financial industry. Some executives from major financial institutions believe that tokenization represents the future of finance and the next evolution of the market. This view may influence the attitudes of other participants in the financial industry.

Real-world assets ( RWA ) are emerging in the cryptocurrency industry. As of May 2024, the RWA market size has exceeded $6.6 billion, reflecting the growing interest from investors in these innovative financial products. Tokenizing RWA and introducing them to the blockchain can create new yield opportunities in decentralized finance ( DeFi ). Some forecasts suggest that by 2030, the asset tokenization market size will reach $10 trillion.

The appeal of this emerging market lies not only in providing yield opportunities for DeFi. By digitizing assets into tokens, asset fragmentation can be achieved - splitting assets such as government bonds, stocks, and real estate into smaller shares. This process enhances asset liquidity and creates investment opportunities for investors at different capital levels.

The main advantages of asset tokenization include: increased liquidity and accessibility, allowing small investors to invest in high-yield assets; improved transparency; enhanced composability, connecting the value of real-world assets to the DeFi ecosystem.

The market value of U.S. tokenized government bonds grew from $114 million in 2023 to $845 million. A certain asset management company is the largest issuer of this asset class, accounting for about 38% of the market share.

A recent study shows that 64% of high-net-worth investors and 33% of institutional investors plan to increase their investments in tokenization of government bonds by the end of 2024.

Although still in its infancy, asset tokenization represents one of the most promising applications of blockchain technology. Some companies are well-positioned in this trend with government bond tokenization services, and investor interest continues to grow.

Ondo Finance: The Bridge Connecting Traditional Finance and Web3

Ondo Finance is transforming finance through its decentralized protocol, providing institutional-grade products using blockchain technology. By tokenizing stable assets from traditional finance, Ondo combines reliability with the efficiency of blockchain.

Ondo has two main departments: asset management and technology. The asset management department creates and oversees tokenized financial products, while the technology department develops the protocols that support these products.

Currently, Ondo Finance offers two main investment options:

1. USDY(Ondo US Dollar Yield Token)

   • Tokenized notes backed by short-term U.S. Treasury securities and bank deposits
   • Provides an annualized return rate of 5.30%(APY), total locked value(TVL) is 315.35 million USD.
   • Safer and more transparent than traditional stablecoins
   • Managed by a trust company to ensure compliance and investor protection

2. OUSG( Ondo Short-term US Treasury )

   • Provide passive investors with low-risk tokenization of short-term U.S. Treasury bonds
   • Provide an annualized yield of 4.81% ( APY ), total locked amount ( TVL ) is 221.32 million USD
   • The investment will be transferred from one ETF to another fund in March 2024.
   • The recently launched new version of OUSG, named rOUSG, provides investors with additional returns.

Flux Finance: An Innovative Decentralized Lending Protocol

Flux Finance is a decentralized lending protocol created by the Ondo Finance team, based on Compound V2 but with added features. It supports open tokens such as USDC and restricted tokens like OUSG. This means users can freely lend USDC, but borrowing against OUSG as collateral requires meeting specific licensing requirements to ensure compliance and security.

Flux uses a peer-to-pool model similar to Compound, allowing users to borrow and lend with over-collateralization. Lenders can earn interest on the stablecoins they provide, while borrowers can use collateral to borrow stablecoins and comply with the asset's licensing requirements. Flux Finance is governed by Ondo DAO.

Market Competition and Ondo's Advantages

With the establishment of partnerships with large financial institutions, Ondo seems to be emerging in traditional finance in the field of crypto RWA. Competition is intensifying in the decentralized finance space. Some protocols focus on tokenization of structured credit, providing exposure to synthetic assets, and offering low-collateral loans to institutions, among other areas.

The advantages of Ondo Finance are:

• By integrating traditional finance with blockchain, aiming at the vast US Treasury market.
• Collaborate with traditional financial giants to avoid direct competition
• Offering innovative products such as USDY and OUSG, which are safer and more transparent than traditional stablecoins.

Token Economics and Uses

ONDO is the governance Token of Ondo Finance and its Flux Finance protocol. Holders have the right to vote on various proposals within the Ondo DAO, ensuring that all decisions are made transparently on-chain. To initiate a proposal, individuals must hold or be delegated at least 100 million ONDO voting rights.

Current price: $1.87 Market Cap Rank: #54 Circulating Supply: 1.44 billion ONDO (, 14.27% of total supply ) Total Supply: 10 billion ONDO

Team Background and Partners

The Ondo Finance team has a diverse mix of personnel from traditional finance and the Web3 field, including professionals from institutions such as Goldman Sachs, a certain asset management company, OpenSea, and MakerDAO. This combination of expertise aligns closely with Ondo Finance's vision and goals.

Ondo Finance has established multiple key partnerships to enhance its blockchain and financial services:

• Collaborate with a foundation to integrate real-world assets with blockchain technology.
• Collaborate with a certain laboratory to promote the use of USDY.
• Collaborate with a trading firm to improve the liquidity of USDY
• Collaborate with an asset management company to demonstrate the commitment to expanding tokenization efforts.

Development Prospects and Challenges

Ondo Finance aims to connect traditional finance and decentralized finance through blockchain technology, creating secure, transparent, and compliant financial products. Its main products include OUSG, OMMF, USDY, and Flux Finance. These products have driven significant growth, with Ondo's TVL increasing from $40 million to $534 million.

In the future, Ondo plans:

• Expand the adoption and liquidity of USDY, OUSG, and OMMF
• Tokenization of publicly traded securities
• Extend the advantages of blockchain to a broader range of financial services.

However, Ondo also faces some challenges:

• The use of ONDO Token carries a risk of centralization.
• Regulatory challenges are significant.
• Non-performing debt is a major risk of DeFi protocols.

Nevertheless, with the growth of the asset tokenization industry, Ondo Finance is expected to play an important role in connecting traditional finance with Web3, thanks to its strategic positioning and innovative products.