On-chain Wall Street: Ondo Finance connects real finance with the encryption world

1. Market Background

The next wave in the blockchain world is not only about performance and throughput, but also about how to deeply integrate real-world assets with decentralized finance. The RWA track is leading the transformation from technology to assets, enabling an unprecedented convergence between the on-chain ecosystem and traditional wealth. Currently, RWA has risen to become the seventh largest category in DeFi, with a total locked value exceeding 12 billion USD.

U.S. Treasury securities are the most liquid financial assets globally. The average daily trading volume reaches tens of trillions of dollars year-round, with the ability to buy and sell at any time and extremely low bid-ask spreads; they are backed by the U.S. government with "full faith and credit," and have never experienced a substantial default, making them a model of zero default risk; their yields are regarded by the industry as the risk-free rate, providing the most reliable anchor for pricing and risk management across various asset classes.

The RWA track, with its unique value of connecting to the real economy and in combination with U.S. Treasury bonds, has become the best paradigm for off-chain assets moving towards on-chain innovation. Tokenized Treasury bonds not only inherit the core advantages of "risk-free interest rates" and the highest credit endorsement of U.S. Treasuries, but also integrate the transparency, efficiency, and composability of DeFi into sovereign bonds, creating an unprecedented investment tool. It is expected that by 2030, the global market for tokenized non-liquid assets will exceed $16 trillion, accounting for 10% of global GDP. As of May 13, 2025, the market value of tokenized Treasury bonds has surged from about $1.39 billion one year ago to $6.89 billion, confirming the explosive growth potential of this track.

Ondo Finance, through its two flagship products USDY and OUSG, has firmly established itself at the forefront of the tokenized U.S. Treasury market. USDY and OUSG account for approximately 25% of the market share among all tokenized U.S. Treasury assets, significantly leading other similar products.

At the same time, Ondo Finance's overall TVL has repeatedly reached new highs. On March 3, 2025, the platform announced that its TVL had surpassed 1 billion USD for the first time, and it has approached 1.2 billion USD in just two months.

Against the backdrop of global inflation retreating and interest rate differentiation, the demand for stable and highly liquid assets is continuously rising, leading to the emergence of tokenized government bonds. Next, we will delve into how Ondo Finance connects the last mile between the crypto world and Wall Street through its unique tools and architecture, achieving a true "seamless asset channel."

2. Overview

Project Overview 2.1

Ondo Finance has launched three tokenized U.S. Treasury and bond products through large, highly liquid ETFs managed by asset management institutions: U.S. Government Bond Fund (OUSG), Short-Term Investment Grade Bond Fund (OSTB), and High-Yield Corporate Bond Fund (OHYG).

• Market share: approximately 20%
• Government bond product market value: $122,511,877
• Management Fee: 0.15%

2.2 Core Product Introduction

Ondo Finance's two core and best-performing products are USDY and OUSG, which cater to stable yield needs and U.S. Treasury investment scenarios, forming the foundational pillars of its RWA product system.

2.2.1 USDY

USDY(US Dollar Yield Token) is an interest-bearing stablecoin, with each USDY backed by short-term U.S. Treasury bonds and bank demand deposits. Holders can automatically earn interest generated from the underlying assets without having to engage in additional contracts or staking.

Introduction to the mechanism:

• Issuance and Minting: Targeting institutions and qualified investors outside the United States, minting and redemption can occur daily at a net value of ($1 USDY≈$1 USD), with a transfer lock-up period of 40-50 days after the first minting.
• Interest Rate and APY: As of April 2025, the target annual yield of USDY is approximately 5.2%. This yield is determined by the actual income from the underlying assets ( government bonds and deposits ), and is set and published monthly by governance documents.

2.2.2 OUSG

OUSG(Ondo Short-Term US Government Treasuries Fund) is an on-chain transferable fund that provides holders with short-term exposure to US Treasuries through custodianship of specific funds and direct bond purchases, and updates the net asset value(NAV) daily to reflect the latest asset performance and fee deductions.

Mechanism composition:

• Underlying assets: mainly invested in short-term US Treasury bonds, as well as high-grade government bonds and GSE funds.
• Fund Structure: Ondo Capital Management is responsible for fund management, and holders obtain corresponding shares by minting/redeeming OUSG tokens; after the end of each business day, the on-chain price Oracle is updated according to the latest NAV.
• Price Release: The on-chain Price Oracle is updated by Ondo, deriving the daily price of each OUSG token by NAV ÷ total token amount, and is publicly available on-chain, supporting 24/7 instant investment and redemption.

Fee Distribution:

• Management Fee: Annualized 0.15%, charged by Ondo Capital Management, used to cover platform operation and management costs.
• Performance Fee: 0%, which means there is no additional sharing regardless of the earnings.
• Other fees: No subscription fees, redemption fees, or hidden fees; all fees are deducted in the daily NAV, and holders do not need to pay additional redemption fees.
• Third-party service fee: The management fee of the underlying fund itself (≈0.10%-0.15% ) has been included in the management fee and NAV mentioned above, with no additional charges.

APY:

• Formula: APY = [(End NAV / Start NAV)^(365/30) - 1] * 100
• Update Rules: Updated once every working day excluding ( holidays, based on the annualized calculation of the changes in net income net value over the past 30 days ) and 7 days (, reflecting historical performance but not representing future performance.

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3. Key Mechanism: Bridging the "Last Mile"

) 3.1 Flux Finance

3.1.1 Technical Foundation

By leveraging Layer 2 networks and Stellar's cross-border settlement capabilities, Flux brings traditional asset liquidity into a multi-chain environment, promoting secondary market trading of stablecoins and RWA tokens on DEXs or aggregators, or providing liquidity in AMM pools, while creating additional income for LPs from fee-sharing.

At the same time, a certain protocol provides native support for RWA compliance verification networks through its own chain; a certain platform builds an on-chain custody and cross-chain trading platform, together forming an end-to-end on-chain financial infrastructure.

3.1.2 Upstream: Issuer and Management

• Traditional Finance: Its mechanism starts with the compliant custody of high-quality traditional assets such as U.S. short-term treasury bonds, supported by underlying returns provided by institutions through ETFs, and is overseen by independent trust institutions responsible for defaults and regulation.
• On-chain finance: After traditional financial funds flow into centralized institutional accounts in the form of USDC, they are transferred to Ondo USDY LLC, which mints two tokenized income certificates, USDY and OUSG, bringing the risk-free interest rates of real-world assets onto the chain.

3.1.3 Midstream: Value-Added Mechanism

• Fund: Users can deposit stablecoins on the platform to obtain USDY or exchange for OUSG through the Flux Fund with a lower threshold, the latter of which releases a large amount of potential liquidity through the "Fund" stage.
• Lend: In the "Lend" section of Flux, OUSG becomes the only high-quality collateral that can be pledged. Permitted on-chain lending agreements or institutional borrowers lend USDC to platform users, who then pledge OUSG in the Flux OUSG Pool, thereby achieving refinancing and leverage of the income certificate.

Flux Finance ensures that the risk of collateral price fluctuations is controllable through continuous monitoring of the OUSG collateral pool and an automatic liquidation mechanism, maintaining the security and efficiency of the entire ecosystem.

3.1.4 Downstream: Value Transmission Mechanism

• The RWA liquidity released by Flux transmits value to the entire Web3 ecosystem through on-chain lending, decentralized trading, and re-staking, providing stable low-cost capital for DeFi protocols, smart contract applications, and emerging sectors such as AI + blockchain and DePIN.
• At the same time, Flux continuously optimizes its governance and compliance framework, introducing multi-signature custody, off-chain audits, and on-chain contract upgrade mechanisms to adapt to the ever-changing regulatory environment and market demands.

Flux Finance tightly integrates U.S. Treasury bonds, a "hard currency," with on-chain efficient markets, achieving not only the value interoperability of on-chain and off-chain assets but also injecting unprecedented massive liquidity into the crypto world. Within this ecological closed loop, the Flux mechanism fulfills the promise of "stability and efficiency coexisting" in the RWA track, opening up a new paradigm for the deep integration of traditional finance and Web3.

3.2 some on-chain

A certain chain is a blockchain network launched by a certain organization, specifically designed for real-world assets, positioning itself as the underlying infrastructure serving institutional-level financial markets. It lies between traditional permissioned chains and open public chains, possessing the compatibility and connectivity of open blockchains while meeting the compliance and risk management needs of institutions.

Core components:

• Native support for real-world assets: Providing services for the on-chain mapping of assets such as government bonds and money market funds from the ground up.
• The "permission model" in the verification mechanism: only audited nodes can validate transactions, which to some extent prevents destructive behaviors like MEV.
• Self-developed cross-chain bridge tool: supports native communication with chains such as Ethereum, Arbitrum, Solana, reducing asset liquidity barriers.
• Mandatory KYC process: Ensures compliance of participant user identities.

A certain chain achieves the mapping and interoperability between on-chain assets and traditional financial products through native support for RWA and integrated compliance mechanisms, bridging the gap between blockchain and the traditional financial system.

Potential defects:

• The permission verification mechanism, although it enhances security, also increases the degree of centralization of the network, with the verification power being held by a limited number of large capital entities, and the freedom for innovation in the mechanism will be restricted.
• Security needs to be strengthened. Although various security mechanisms have been implemented, such as permissioned validators and cross-chain bridging, the security of the verification layer and intermediate layer still needs further validation. Considering the large amount of funds involved, any security incident would have unimaginable consequences.

3.3 A certain trading platform

A certain trading platform is a tokenization platform launched by a certain institution, aiming to put traditional financial assets such as stocks, bonds, and ETFs on-chain, providing global investors with around-the-clock on-chain trading channels. Its core innovation lies in realizing the tokenization of traditional financial assets through blockchain technology, giving them liquidity and transferability similar to stablecoins, thereby bridging the gap between on-chain finance and traditional finance.

Key part:

• Certain chain: As an underlying infrastructure, it provides an environment that combines the openness of public blockchains with the compliance of permissioned chains, supporting the issuance, trading, and management of tokenized assets.
• Cross-chain bridge: The platform achieves asset transfer with multiple blockchain networks through the integrated cross-chain bridge, enhancing cross-chain interoperability.
• Collaborate with the ecosystem of traditional financial institutions: ensure the safe custody and compliance of underlying assets.

Advantages:

• For user investors, it provides unprecedented convenience. It has achieved the combination of retail investors' dispersed funds into a unified collateral pool across institutions and companies, releasing the potential liquidity of small retail investors. This allows ordinary investors to participate in financial operations such as margin trading, derivatives, and perpetual options, which were previously only accessible to large institutions.
• For institutions, leveraging the advantages of blockchain smart contracts simplifies traditional financial processes. Subscription and redemption operations can be completed directly through interactions with wallet addresses and mapped to real assets, reducing intermediaries and increasing efficiency; furthermore, the blockchain mechanism can automatically handle default risks, streamline processes, enhance efficiency, and strengthen the system's security and reliability.

Potential defects:

The platform is still in its early stages and has not yet achieved full integration with traditional finance. As the integration deepens, mechanisms in the cryptocurrency space, such as re-staking and flash loans, may have a significant impact on traditional assets that lack sufficient liquidity. While promoting financial innovation, it is also necessary to weigh risks and rewards to ensure the stability of the system.

4. Mechanism Comparison

The three key mechanisms link traditional finance with the encryption world, achieving the on-chain transformation of real assets and the complete release of liquidity.

• A certain chain is for U.S. Treasury bonds, money market funds, and other high-grade assets.