Analysis of Ondo Finance: How to do RWA in the United States?

Words: Mankiw

At the moment, RWA is really on fire.

From the Hong Kong Web3 Carnival in early April to the recent Web3 lawyer circle, everyone is talking about RWA. There is some reason for this; after all, RWA is a relatively reliable and safe way to "issue tokens."

A few days ago, Lawyer Mankun talked with everyone about the new RWA projects in China, such as "Mankun Research | Decoding the Characteristics of RWA in Mainland China: Practical Features, Risk Analysis, and Optimization Paths," and also shared the current gameplay of RWA, such as "Lawyer Mankun | The Fragmented Web3 World, There Are At Least Three Types of RWA."

However, if we want to talk about the precedent and faucet of RWA, we have to turn our attention to the United States. One of the more representative ones is probably Ondo. In particular, in the past two days, the U.S. Securities and Exchange Commission (SEC) also met with it to discuss the plan for the compliant issuance of tokenized securities, which really knocked a big S on Ondo's report card again.

• Image source: SEC document screenshot

Therefore, in this article, Mankiw's lawyer will talk to you about the RWA gameplay in the United States based on Ondo's RWA model.

Ondo RWA Model Breakdown

The reason Ondo is referred to as the leading RWA project in the industry is that, according to lawyer Mankun, the most important point is that while most projects are still contemplating "what real assets to use for launching tokens and financing," Ondo has already brought assets like U.S. Treasury bonds and money market funds onto the blockchain and integrated them into DeFi gameplay.

For example, the token issued by Ondo, USDY (Ondo US Dollar Yield Token), is anchored to short-term US Treasury bonds and bank deposits, which means:

First, the asset is backed by solid returns. USDY is essentially a yield-based stablecoin, and investors can enjoy the income brought by U.S. bonds or bank deposits every day;

Second, transparency and security are guaranteed. The underlying logic of the asset, such as custody, auditing, income distribution, etc., still follows the compliance standards of traditional finance.

In addition, USDY adopts a bankruptcy isolation structure, where reserve assets are completely separated from the issuer, and investors have priority claims on reserve assets in the event of extreme circumstances. In addition to USDY, Ondo also issues OUSG, which is anchored to a short-term U.S. Treasury fund, with a similar logic to USDY.

Therefore, Mankiw's lawyer believes that, to a certain extent, Ondo is more like moving the wealth management products and clearing mechanism of traditional finance to the chain, giving assets liquidity on the chain while ensuring controllable returns and risks.

Speaking of asset liquidity, we must also mention another product from the Ondo team, Flux Finance.

If issuing tokens is just the first step for RWA, then enabling RWA tokens to flow on-chain is the key to appreciation. Thus, Flux Finance was born—a lending protocol exclusively for RWA.

Flux differs from common lending protocols (Compound, Aave) in that it allows users to use these tokenized treasury bonds (such as OUSG) as collateral to lend stablecoins such as USDC.

So, the question arises: These government bonds have 100% security characteristics, will putting them in DeFi touch American regulations?

Ondo's solution is permission-based: not everyone can borrow OUSG, you have to go through a compliance review to make sure you're a qualified investor. In other words, through the centralized review system, the disordered state of "any asset can be pledged" in DeFi is avoided, and on-chain lending activities are also carried out under the compliance framework.

This design is tantamount to setting a template for the compliance of RWA+DeFi on the overall chain in the future.

In fact, by this point, the gameplay of RWA has already formed a closed loop. However, Ondo is still expanding in the RWA field—since RWA is so popular and various projects want to get into RWA, how do they issue it and where do they circulate? There must be some infrastructure in place.

Yes, Ondo has also been active at the infrastructure level. It has built its own chain, Ondo Chain, specifically designed for RWA, with the core gameplay being:

Licensed validators, traditional financial institutions such as Franklin Templeton and WisdomTree serve as network nodes to ensure the security and compliance of the network.

The open application layer allows any developer to issue RWA tokens and make dApps on this chain;

Built-in oracle + cross-chain bridge, the asset prices, interest rates and other data on the chain are directly fed by the validating nodes.

This architecture not only meets the requirements of institutions for security and regulation but also ensures the inherent openness of Web3.

Of course, with the infrastructure in place for everyone to issue tokens, a token standard also needs to be arranged. Therefore, Ondo announced its plan to create Ondo Global Markets (Ondo GM) in 2024.

At the beginning, the design of Ondo GM was relatively traditional, following the "brokerage instruction model," where tokens represent investors' position instructions given to traditional brokerages, leaning towards a permissioned and closed system.

However, according to the February 2025 Ondo blog post, after in-depth exchanges with developers, TradFi institutions, and U.S. regulatory officials, Ondo GM is redesigning the tokenization framework to make the RWA token similar to a stablecoin, where the token itself flows freely, but the distribution layer is embedded with the logic of compliance permission. In this way, any token issuer can issue compliant and flexible RWA tokens through Ondo GM.

In summary, while others are still researching how to issue RWA assets, Ondo has already developed a complete on-chain system for how RWA assets can be smoothly integrated from the traditional financial world.

Ondo in relation to RWA in the United States

After discussing Ondo's RWA model, let's take a step back and see what problems Ondo has actually solved and what progress it has driven in the U.S. RWA industry.

Lawyer Mankun believes that we can start from the following two levels:

Market level

In the current industry, when many people talk about RWA, the narrative often stops at "helping traditional enterprises issue tokens for financing." However, lawyer Mankun believes that the true value of RWA has never been just about issuing a token. For high-quality assets, exploring RWA is about providing those already valuable assets with greater liquidity opportunities and usage efficiency. The thresholds are relatively lower compared to ABS, REITS, etc., and the programmable nature of tokens can be utilized to find more ways to activate assets in the future.

At this point, Ondo's design has set a standard for the industry.

Whether it is the two RWA tokens it has already issued, or the Ondo GM that it is building, it is building a new financial market with 7*24 hours of circulation, minting and redemption at any time, breaking the traditional financial rule of "only opening during working hours".

Of course, circulation is just the first step. Traditional financial products are not incapable of circulating, but their liquidity is often restricted to specific times and platforms, with cross-market and cross-asset activities essentially locked down. It's like when you buy a gold ETF or a bond fund; although these assets are "flowing" in your account, what can you actually do? At most, you can wait for price fluctuations or switch platforms for trading. If you want to participate in lending, yield, or derivatives activities, there is basically no chance.

The design of Ondo's RWA is to break down these "walls". Especially in DeFi applications, it allows these tokenized traditional financial assets to be integrated into various on-chain application scenarios. In simple terms, it enables these assets, which could only "earn passive income" before, to be reorganized and appreciated on the chain. This might be the true direction for unlocking the real value of RWA.

Compliance level

The logic at the market level is actually very easy to implement, and it is easy to do it with technology and capital. However, in the U.S. market, compliance is the key threshold if you want to put securities assets on the chain, especially in the past few years, when the US SEC has been pressing step by step.

Therefore, Ondo can grow and strengthen itself in such a context, and there must be a certain rationale on the compliance level.

First, lawyer Mankun discovered during his visit to the Ondo platform that many products cannot be used under a US IP, such as token types. This means that Ondo, in its product design, actively imposes restrictions on US users to avoid the high-pressure areas of US regulation.

Of course, simply blocking U.S. IPs is not enough. Since the anchored assets come from the U.S. market, Ondo must strictly adhere to U.S. compliance standards in aspects related to custody, auditing, and bankruptcy isolation that are directly linked to funds, even if the users are overseas. Therefore, Ondo has implemented measures such as: placing assets in custody with U.S. regulated trust institutions (such as Ankura Trust), conducting strict licensing and qualification reviews for lending activities, designing bankruptcy isolation mechanisms, and ensuring investors' priority claims.

But the question is, what about the U.S. market?

In 2025, Ondo joined forces with Davis Polk Law Firm to negotiate with the SEC on the compliance of tokenized securities, so there was the "wrapped security token" plan mentioned by Mankiw's lawyer above, that is, through the embedding of permission control in the distribution layer, exploring registration exemptions, market structure exemptions and other paths, trying to make tokenized securities find a legal landing space in the U.S. market.

In other words, Ondo is using its existing compliance framework to steadily run through the non-US market; On the other hand, it has taken the initiative to dialogue with U.S. regulators, trying to explore the possibility of a compliant landing of RWA assets in a high-pressure environment.

Mankiw's legal practice recommendations

After talking so much, let's return to the most critical question: how does the U.S. RWA actually work?

Mankiw's lawyer's advice is: don't fantasize about one step, avoid + explore, balance + step-by-step, is the most realistic way to play:

First, the market does not lack products; what is lacking is a "way out." The U.S. securities market has a large scale and high asset quality, making it an ideal pool for RWA. However, the regulatory barriers are also high, with every link from securities law, market structure, to brokers, and anti-money laundering being a "minefield." Although a crypto-friendly SEC chairman has taken office, no one knows which direction the regulatory approach will turn next. Therefore, it is still better to land in non-U.S. markets first, ensuring that the asset side complies with regulations.

Second, I want to learn to design more ways to play, but I also need to pay attention to the boundaries. In particular, DeFi gameplay is certainly abundant, but in the U.S. market, the more fancy the gameplay, the more sensitive the regulation. In addition, don't always think about decentralization, it turns out that if you want to be compliant, you still need centralized participation, especially in high-risk scenarios such as lending and derivatives, and centralized restrictions make the gameplay more secure and transparent.

Third, engage in more dialogue with regulators and pave the way in advance. Don't think about circumventing it; you can't bypass it. The regulatory environment in the U.S. is strong, and if you want to grow, you must have your own compliance framework, including collaborating with law firms in advance or forming your own legal team to proactively engage with the SEC and explore compliance pathways.

In short, first dig deep into the two major moats of the market and compliance, then slowly find a way to break through; don’t expect to achieve success overnight.