Market Opportunity
BlackRock’s CEO, Larry Fink, believes that tokenization is the future of finance and the next step in market evolution. This stance may influence the attitudes of other major financial players. As highlighted in our previous research on Dusk Network, Real World Assets (RWA) are becoming an important asset class in the cryptocurrency industry. As of May 2024, the RWA market has surpassed $6.6 billion, reflecting investors’ growing interest in this innovative financial product. Tokenizing RWAs and introducing them into the blockchain can provide yield opportunities in DeFi (Decentralized Finance). The asset tokenization market is expected to reach $10 trillion by 2030.
The primary appeal of this emerging market is not only providing yield opportunities for DeFi. By digitizing assets into tokens, it enables asset fractionalization – dividing assets such as government bonds, stocks, and real estate into smaller shares. This process enhances liquidity and opens doors to investment opportunities for investors with different capital levels.
Chainlink provides an illustration below explaining how asset tokenization works. Its main advantages include increasing liquidity and accessibility through interoperable tokenized assets, allowing small investors to invest in high-yield assets with relatively low capital. Additionally, due to the public nature of many blockchains, it improves transparency and enhances composability by connecting the value of real-world assets to the DeFi ecosystem.
The market value of tokenized US government bonds has also grown from $114 million in 2023 to $845 million. Franklin Templeton is the largest issuer in this asset class, accounting for about 38% of the market. According to Ernst & Young’s latest research, 64% of high-net-worth investors and 33% of institutional investors plan to increase their investments in tokenized government bonds by the end of 2024.
While still in its early stages, asset tokenization represents one of the most promising and potential applications of blockchain technology.
Ondo Finance is well-positioned to capitalize on this trend with its government bond tokenization service as investor interest continues to grow. Ondo is transforming finance through its decentralized protocol, leveraging blockchain to provide institutional-grade products. By tokenizing stable assets from traditional finance, Ondo combines reliability with the efficiency of blockchain.
Ondo has two main divisions: Asset Management and Technology. The Asset Management division creates and oversees tokenized financial products, while the Technology division develops protocols that support these products.
Currently, Ondo Finance offers two different investment options:
– USDY (Ondo US Dollar Yield Token): Tokenized notes backed by short-term US government bonds and bank deposits. It offers an APY of 5.30% with a total value locked (TVL) of $315.35 million. It is safer and more transparent than traditional stablecoins like USDT/USDC. It is managed by Ankura Trust Company to ensure compliance and investor protection.
– OUSG (Ondo Short-Term US Government Bond): Tokenized short-term US government bonds for passive investors. It offers an APY of 4.81% with a TVL of $221.32 million. It will be transferred from BlackRock’s SHV to BUIDL in March 2024. Ondo recently launched a new version of OUSG called rOUSG, which provides additional yield through additional rOUSG tokens.
Ondo’s Flux Finance, created by the Ondo Finance team, is a significant advancement in decentralized lending. It is based on Compound V2 but adds new features. It supports open tokens like USDC and restricted tokens like OUSG. This means you can freely lend USDC, but using OUSG as collateral for borrowing requires meeting specific permission requirements to ensure compliance and security. Flux Finance is governed by Ondo DAO.
Competition is intensifying in the decentralized finance space. Centrifuge focuses on tokenizing structured credit and issuing debt using NFTs. Ethena offers synthetic asset exposure, allowing users to trade without holding the underlying assets. Maple Finance provides low-collateral loans for institutions, emphasizing credit assessment and lending. Pendle handles tokenized yield trading, allowing users to separate and trade the income portion of assets. Ondo Finance stands out for several reasons. It positions itself strategically by partnering with giants like BlackRock, establishing its presence in the crypto RWA category and complementing other TradFi companies.
