Mankiw Research | Analyzing Ondo Finance: How to Handle RWA in the US?

Currently, RWA is indeed on fire. From the Hong Kong Web3 Carnival in early April to the recent discussions in the Web3 legal community, everyone is talking about RWA. It's not without reason, as RWA is a relatively reliable and safe way to "issue tokens." A few days ago, Lawyer Mankun talked with everyone about China's newly emerging RWA projects, such as "Mankun Research | Decoding China's Unique RWA: Practical Characteristics, Risk Analysis, and Optimization Pathways," and also shared with everyone the current ways of playing with RWA, such as "Lawyer Mankun | The Fragmented Web3 World: At Least Three Types of RWA." However, when it comes to the precedents and leaders of RWA, we must turn our attention to the United States. A representative example would probably be Ondo. Especially in the past couple of days, the U.S. Securities and Exchange Commission (SEC) met with them to discuss compliance for issuing tokenized securities, which indeed adds a big S to Ondo's report card.

*Image Source: SEC document screenshot Therefore, in this article, Lawyer Mankun will chat with everyone about the gameplay of RWA in the United States based on Ondo's RWA model. Ondo RWA Model Deconstruction The reason Ondo is regarded as the leading project in RWA by the industry is that, according to lawyer Mankun, the most important point is that while most projects are still contemplating "what real assets to launch to raise funds with tokens," Ondo has already brought assets such as U.S. Treasury bonds and money market funds onto the blockchain and integrated them into DeFi.

Take the token USDY (Ondo US Dollar Yield Token) issued by Ondo as an example. The real assets it is anchored to are short-term U.S. Treasury bonds and bank deposits, which means: First, this asset has solid yield support. USDY is essentially a yield-bearing stablecoin, allowing investors to enjoy the returns generated by U.S. Treasury bonds or bank deposits on a daily basis. Second, transparency and security are guaranteed. The underlying logic of the asset, such as custody, auditing, and profit distribution, still adheres to the compliance standards of traditional finance. In addition, USDY adopts a bankruptcy isolation structure, where the reserve assets are completely separated from the issuer, and in the event of extreme circumstances, investors have priority claims on the reserve assets. 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, Lawyer Mankun believes that, to some extent, Ondo is more like moving traditional financial wealth management products and clearing mechanisms onto the chain, providing on-chain liquidity for assets while ensuring that returns and risks are manageable. Speaking of asset liquidity, we have to 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 the chain is the key to appreciation. Hence, there is Flux Finance—an exclusive lending protocol for RWA. The difference between Flux and common lending protocols (such as Compound and Aave) is that it allows users to use these tokenized government bonds (like OUSG) as collateral to borrow stablecoins such as USDC. So, the question arises: Treasury bonds have 100% security attributes, will putting them in DeFi trigger U.S. regulation? The solution of Ondo is a licensing system: not everyone can borrow OUSG; they must go through a compliance review to ensure they are qualified investors. In other words, through a centralized review system, it avoids the disorderly state of "any asset can be collateralized" in DeFi, ensuring that on-chain lending activities are conducted within a compliant framework. This design sets a template for the upcoming compliance of the overall on-chain RWA + DeFi. Actually, at this point, the play of RWA has already formed a closed loop. However, Ondo is still expanding its territory in the RWA field—since RWA is so popular and various projects want to engage in RWA, how do they issue it, and where does it circulate? There must be some infrastructure, right?

Yes, Ondo is not idle at the infrastructure level either. It has built its own chain, Ondo Chain, which is specially tailored for RWA, and the core gameplay is: Licensed validators, traditional financial institutions such as Franklin Templeton and WisdomTree serve as network nodes to ensure the security and compliance of the network. Open application layer, any developer can issue RWA tokens and create dApps on this chain; Built-in oracle + cross-chain bridge, asset prices and interest rates on the chain are directly fed by 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 available for everyone to issue tokens, a token standard also needs to be arranged. Therefore, Ondo announced the plan to create Ondo Global Markets (Ondo GM) in 2024.

At the beginning, the design of Ondo GM was relatively traditional, following the "brokerage order model," where tokens represent investors' position orders placed with traditional brokerages, overall leaning towards a permissioned and closed system. However, according to the Ondo blog post in February 2025, after in-depth discussions with developers, TradFi institutions, and regulatory officials, Ondo GM is redesigning the tokenization framework to create RWA tokens similar to stablecoins. The tokens themselves will circulate freely, but the distribution layer will embed compliance licensing logic. 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 to the blockchain. Ondo in relation to US RWA After discussing Ondo's RWA model, let's take it a step further and see what problems Ondo has actually solved and what advancements it has promoted in the U.S. RWA industry. Lawyer Mankun believes that we can start from the following two aspects: Market level In the current industry, when many people talk about RWA, the narrative often stops at the step of "helping traditional enterprises issue tokens for financing." However, attorney Mankun believes that the true value of RWA has never been just about issuing a token. For quality assets, exploring RWA is about providing higher liquidity opportunities and utilization efficiency for assets that already have value. The threshold is relatively lower compared to ABS and REITS, and it can utilize the programmable features of tokens 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 is being built, it is building a new financial market that circulates 7 * 24 hours a day, minted and redeemed at any time, breaking the traditional financial system of "only opening during working hours" rules. Of course, circulation is just the first step. Traditional financial products can also circulate, but their liquidity is often limited to specific times and platforms, and the play across markets and assets is fundamentally locked. It's like when you buy a gold ETF or a bond fund; these assets may be "flowing" in your account, but what can you do with them? At most, you just wait for price fluctuations or switch platforms to buy and sell. If you want to participate in lending, yield, or derivatives, basically, there’s no way. The RWA design of Ondo is to break down these "walls". Especially with DeFi applications, it can bring these tokenized traditional financial assets into various on-chain scenarios. In simple terms, it allows these assets, which could originally only "earn passive income", to be reorganized and appreciate in value on the chain. This may be the true direction for exploring the real value of RWA. Compliance level The logic at the market level is actually very easy to implement, as long as there is technology and funding. However, in the US market, the key hurdle to moving securities assets onto the blockchain is compliance, especially in light of the increasing pressure from the SEC in recent years. Therefore, Ondo can grow and strengthen under such circumstances, and there must be certain regulations that play a role. First, Lawyer Mankun found during his visit to the Ondo platform that many products are not available under US IP, such as token types. This means that Ondo, in its product design, actively restricts American users to avoid the high-pressure area of US regulation. Of course, simply blocking US IPs is not enough. Because the anchored assets come from the US market, Ondo must strictly adhere to US compliance standards in areas directly related to funds such as custody, auditing, and bankruptcy isolation, even when its users are overseas. Therefore, Ondo has implemented measures in these areas such as: custody of assets in trust institutions regulated by the US (such as Ankura Trust), strict licensing and qualification reviews for lending activities, designing bankruptcy isolation mechanisms, and ensuring priority claim rights for investors. But the question is, what about the U.S. market? In 2025, Ondo, in collaboration with Davis Polk law firm, negotiated with the SEC regarding compliance for tokenized securities, leading to the proposal of the "wrapped security token" mentioned by lawyer Mankin above. This involves exploring paths such as registration exemptions and market structure exemptions through the distribution layer's embedded access control, attempting to find a legal space for tokenized securities in the U.S. market. In other words, Ondo is steadily navigating the non-U.S. market using existing compliance frameworks on one hand, while actively engaging in dialogue with U.S. regulators on the other, attempting to explore the possibility of compliance for RWA assets in a high-pressure environment. Mankiw Lawyer Practice Suggestions After discussing so much, let's return to the most critical question: how exactly does the U.S. RWA work? Mankun's advice is: don't fantasize about achieving everything at once; avoidance + exploration, balance + step-by-step, is the most realistic approach. First, the market is not lacking in products, but in "survival paths." 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 aspect from securities law, market structure, to broker-dealers and anti-money laundering being a "minefield." Although a crypto-friendly SEC chairman has taken office, no one knows where the regulatory direction will turn next. Therefore, it is still better for non-U.S. markets to take the lead, ensuring that the asset side complies with regulations. Secondly, we want to learn to design more gameplay, but we must also pay attention to the boundaries. Especially for DeFi gameplay, although it is very rich, the more fancy the gameplay, the more sensitive the regulation is in the U.S. market. Additionally, we shouldn't always think about the path of decentralization. The fact has proven that to comply with regulations, centralized participation is still needed, especially in high-risk scenarios like lending and derivatives. Centralized restrictions make the gameplay safer and more transparent. Thirdly, engage in dialogue with regulators and lay the groundwork in advance. Don't think about circumventing it; you can't bypass it. The regulatory environment in the U.S. market is strong, and if you want to grow, you must have your own compliance framework, including collaborating with law firms in advance or building your own legal team, proactively communicating with the SEC, and exploring compliance pathways. In short, first dig well the two moats of market and compliance, then slowly find a way to break through, and do not think of becoming fat in one bite.

/ END. Authors of this article: Iris, Mao Jiehao