Ondo Finance Explained: A Successful RWA Pivot with Uncertain Token Utility

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The rise of Real-World Assets (RWA) has been hailed as a breakthrough for decentralized finance (DeFi), bridging traditional financial instruments with blockchain innovation. Yet, for many retail investors, RWAs still feel out of reach—often requiring KYC verification and high investment thresholds that exclude average crypto participants.

So how can investors gain early exposure to the growing RWA sector? There are two primary paths:

  1. Invest in RWA project tokens
  2. Access low-barrier RWA products

While both strategies offer opportunities, they come with distinct risks and requirements. One project stands out as a compelling case study: Ondo Finance. This article explores Ondo’s transformation into a leading RWA platform, analyzes its core offerings, and evaluates the evolving role of its native ONDO token.

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From DeFi Liquidity Provider to RWA Leader

Founded in 2021, Ondo Finance initially focused on liquidity-as-a-service (LaaS) solutions. However, as the 2022–2023 bear market reduced DeFi activity and liquidity across chains, the team strategically pivoted to the RWA sector in January 2023.

This one-year transition proved highly successful. According to DefiLlama, Ondo Finance now ranks third in total value locked (TVL) among RWA protocols, with over $183 million in assets under management.

What drove this rapid growth? A combination of smart product design, regulatory foresight, and strategic partnerships—particularly with major institutions like BlackRock and Coinbase.

Ondo’s current RWA portfolio includes three key products:

Let’s examine each in detail.

OUSG: Accessing U.S. Treasury Yields on-Chain

OUSG is Ondo Finance’s flagship product, accounting for $117 million of its total TVL. It offers tokenized exposure to the iShares Short Treasury Bond ETF (SHV), managed by BlackRock.

Key Features:

SHV itself holds short-duration U.S. Treasury bills (maturity under one year), making it a low-volatility, high-liquidity instrument. With an AUM of $18.4 billion and an AA credit rating from S&P, it's a trusted vehicle in traditional finance.

OUSG leverages a U.S.-based Special Purpose Vehicle (Ondo I LP) to hold the underlying ETF shares. This legal structure ensures investor risk isolation, meaning if Ondo Finance faces insolvency, OUSG assets remain protected.

However, access isn’t open to everyone:

Despite these high barriers, OUSG has attracted institutional and accredited investors seeking regulated, yield-generating exposure to U.S. debt—making it a cornerstone of Ondo’s success.

USDY: A Compliant Yield-Bearing Digital Note

For retail investors, USDY represents a more accessible entry point into the RWA space.

Launched as a tokenized note backed by short-term U.S. Treasuries and interest-bearing bank deposits, USDY blends elements of stablecoins and money market funds—but with regulatory compliance baked in.

Why USDY Stands Out:

Unlike volatile crypto assets or algorithmic stablecoins, USDY uses a robust framework to ensure safety and transparency:

Risk Mitigation & Structure

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This multi-layered approach makes USDY one of the most transparent and secure RWA products available—especially appealing to risk-conscious investors.

Moreover, users can buy USDY via USDC on-chain or through wire transfer, increasing accessibility across jurisdictions.

Still, adoption remains limited. Despite its advantages over USDT or USDC in terms of yield and backing, USDY lacks widespread utility in DeFi protocols—a challenge Ondo must address.

OMMF: The Future of Government Money Market Exposure

Ondo plans to launch OMMF, a tokenized version of a U.S. government money market fund. Though details are sparse ahead of launch, OMMF is expected to follow similar compliance and custody frameworks as USDY.

Given the success of existing products, OMMF could further expand Ondo’s reach—especially among conservative investors looking for stable, regulated yields.

Flux Finance: Enhancing RWA Liquidity

In February 2023, Ondo launched Flux Finance, a lending protocol built on Compound V2, to solve a critical RWA problem: illiquidity.

Most RWA redemptions require off-chain processing through SPVs, taking 1–5 days to settle. Flux provides instant liquidity by allowing users to borrow against their OUSG holdings.

While USDY can be traded directly on DEXs after minting, Flux adds crucial flexibility for long-term RWA investors who want exposure without locking up capital.

Currently, Flux supports only OUSG as collateral—but future integrations could include other RWA tokens, boosting cross-asset utility.

ONDO Token: Governance Without Clear Utility?

Ondo launched its native token, ONDO, prior to its RWA pivot. Initially sold via CoinList with a 1-year lock-up, ONDO was designed for governance within Flux Finance and the broader Ondo DAO.

After unlocking on January 18, 2025, ONDO surged nearly 2.5x, reaching $0.27 per token. The listing on Coinbase’s asset roadmap added credibility—especially since Coinbase plays a dual role as investor and infrastructure partner (e.g., facilitating USDC-to-dollar conversions).

Yet despite price momentum, ONDO’s long-term utility remains unclear.

Key Questions:

Currently, no direct link exists between ONDO and revenue-sharing from OUSG or USDY. Of the total supply, only 16% has been allocated (to investors and public sale), leaving 84% unassigned—suggesting future incentives may be planned.

Integrating ONDO into the RWA flywheel—for example, rewarding token stakers with yield boosts or governance rights on new product launches—could dramatically increase demand.

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Frequently Asked Questions (FAQ)

Q: Is Ondo Finance safe for retail investors?
A: While OUSG has high entry barriers, USDY is designed for retail users with lower minimums and strong collateral safeguards. Its use of regulated entities like Ankura Trust enhances security.

Q: How does Ondo ensure regulatory compliance?
A: Through SPVs incorporated in the U.S., third-party trustees (Ankura), daily reserve attestations, and partnerships with established financial institutions like BlackRock and Morgan Stanley.

Q: Can I trade OUSG or USDY on decentralized exchanges?
A: USDY can be traded on DEXs after a 40–50 day lock-up period. OUSG cannot be freely traded but can be used as collateral on Flux Finance for loans.

Q: What gives USDY its yield?
A: Returns come from interest earned on underlying U.S. Treasury bills and interest-bearing bank deposits, distributed proportionally to token holders.

Q: Why is the ONDO token price rising despite unclear utility?
A: Market optimism around RWA growth, Coinbase’s involvement, and speculation about future utility upgrades are driving sentiment—though fundamentals remain speculative.

Q: Are there risks involved in investing in Ondo’s products?
A: Yes. Risks include counterparty exposure (e.g., custodians or banks), regulatory changes, interest rate volatility, and potential smart contract vulnerabilities—even though core assets are off-chain.

Final Thoughts

Ondo Finance has successfully repositioned itself as a leader in the RWA space through well-structured, compliant products like OUSG and USDY. By leveraging trusted financial partners and transparent custody models, it bridges Web3 with traditional finance more effectively than many competitors.

However, long-term sustainability depends on expanding accessibility—and giving the ONDO token real economic purpose beyond governance.

If Ondo can integrate ONDO into yield distribution, staking rewards, or protocol incentives, it may unlock broader adoption and cement its place as a foundational player in the tokenized asset economy.

For now, it remains one of the most promising—and cautiously optimistic—bets on the future of real-world asset tokenization.

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