Ondo Finance: How Traditional Asset Tokenization Works on the Blockchain

Ondo Finance is one of the leading platforms in financial innovation, enabling the transfer of real-world assets (RWA) onto the blockchain. The main goal of the project is to make institutional-level financial capabilities accessible to everyday investors, thereby bridging the gap between traditional and decentralized finance (DeFi).

Ondo’s business model is based on two main pillars: an asset management division that creates new tokenized investment products, and a technology side that develops everything from decentralized protocols to private lending services. This approach has allowed Ondo to enable investors and developers to explore a new dynamic of real-world assets within a single ecosystem.

A New Art of Tokenizing Real Assets

Through Ondo, U.S. government bonds, institutional deposits, and other high-quality assets find new life on the blockchain. The tokenization process is straightforward: an investor selects their stablecoin (e.g., USDC) and receives fractional tokens of the tokenized asset, representing proof of ownership of the underlying investment.

This method is radically different from the traditional approach from banks to crypto clients. Previously, investors had to navigate bureaucratic labyrinths before starting the process. In Ondo’s case, once KYC (Know Your Customer) verification is complete, the user proceeds directly to receiving tokens.

Institutional Finance on the Blockchain: USDY and OUSG Products

Ondo’s two flagship products are USDY (U.S. Dollar Yield Token) and OUSG (Ondo Short-Term U.S. Treasuries), both providing access to U.S. credit markets.

USDY is a price-stable, income-generating token backed by U.S. short-term government bonds and bank deposits. Its unique feature is that it can be used in two modes: a standard, cumulative USDY version where yields are embedded in the token’s price, and an rUSDY rebasing version, which is maintained at a fixed $1 price, with additional income reflected through new tokens.

OUSG targets institutional investors focused on a portfolio of U.S. short-term government bonds. Similar to USDY, OUSG also comes in cumulative and rebasing versions. Major asset managers like BlackRock and Fidelity are responsible for managing the underlying portfolio, which lends high credibility to this token’s proof.

The investment process is quite structured: users first complete KYC verification, submit verified documentation, and support their blockchain wallet. After approval, verified investors deposit USDC or, in larger amounts, facilitate bank transfers in USD. Deposits are typically processed within two to three business days, and interest accrues immediately.

The actual token is received after a 40-50 day transfer period, which is indicated by a “temporary global certificate.” During this interval, investors already accrue yields, but the token remains unavailable for swap. Once received, tokens can be freely transferred within permitted regions and are obligated. Withdrawals are only possible after converting funds to USD and transferring via bank to non-U.S. accounts.

Ondo Ecosystem: Three Main Pillars

Ondo’s strategy focuses on three main programs:

Ondo Global Markets is the future-facing part of the platform, planning to tokenize a range of traditional investment instruments—from stocks and bonds to ETFs and valuable securities. It primarily targets investors outside the U.S., aiming to make tokenized shares of companies and ETFs managed by firms like BlackRock or Fidelity accessible.

Ondo Chain is designed as a first-tier blockchain focused solely on scaling institutional finance. This network provides all functions from lending real assets to collateralization of active assets. It supports connections with public and private blockchains, portfolio management, and the distribution of security-backed stablecoins. Operating on a trusted organization and validator model, it produces complex security metrics, including proof of reserves and a decentralized validator network. Staking is also possible on real assets, enhancing network security through validator incentives.

Flux Finance is Ondo’s own decentralized lending protocol, operating independently with its governance structure. Built on the Compound V2 architecture, it uses a peer-to-pool model where lenders deposit assets into shared liquidity pools, and borrowers access high-quality, collateralized liquidity. This design allows Flux to support open assets like USDC as well as private tokens like OUSG. Lenders earn interest on their stablecoins, while borrowers gain access to high-quality, secured liquidity. Governed via a DAO, its decisions must align with Ondo’s broader RWA ecosystem policy.

ONDO Token: Governance, Incentives, and Ecosystem Development

The ONDO token is the native governance token of the Ondo ecosystem, granting holders the right to influence the system’s development. It is used for functions such as pausing market operations, updating oracle addresses, managing treasury resources, and adding new assets to the ecosystem. Token holders can delegate their voting rights to others, enabling more decentralized governance.

Through ONDO, participants actively vote on updates to Flux Finance’s models, listing new assets, changes to interest rate structures, and reserve management policies. The Ondo Foundation has taken various steps to foster a connection between the DAO and real-world partners, supporting the vision of Ondo’s future.

Final Summary

Ondo Finance is a significant part of the bridge between blockchain and traditional finance. With tokenized products like USDY and OUSG, institutional-level finance is now accessible on the blockchain. As Ondo continues to develop its Global Markets and Ondo Chain, the platform expands its scope, facilitating the tokenization of real assets and making their value more functional and straightforward in the crypto space. This asset layer is of profound importance for blockchain finance, positioning Ondo as an innovative leader in this domain.