Ondo Finance Plans Yield-Generating Stablecoin Alternative for Institutional Investors

The new stablecoin-like token, OMMF, will be backed by conventional money market funds and is available only to qualified purchasers and accredited investors. But retail investors can lend against the tokens via Ondo’s DeFi protocol Flux to indirectly access the yield.

AccessTimeIconApr 13, 2023 at 6:30 p.m. UTC
Updated May 9, 2023 at 4:12 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Ondo Finance, a security token startup, is launching a stablecoin alternative that will pay its holders interest via a tokenized money market fund.

Ondo says its OMMF token will be pegged to US$1 and backed by money market funds that trade on traditional exchanges. Investors will be able to mint and redeem OMMF on business days and collect interest daily in the form of new OMMF tokens, according to the company’s blog post.

  • Eisenberg's $110M Fraud Trial Opens; FSI Calls for Consistency in Stablecoin Regulation
    Eisenberg's $110M Fraud Trial Opens; FSI Calls for Consistency in Stablecoin Regulation
  • Wormhole’s W Token Has a 999% Weekly Return; Why VanEck Is Bullish on Ethereum Layer 2s
    Wormhole’s W Token Has a 999% Weekly Return; Why VanEck Is Bullish on Ethereum Layer 2s
  • El Salvador Bags Major Bitcoin Gains; Hong Kong's Stablecoin Push
    El Salvador Bags Major Bitcoin Gains; Hong Kong's Stablecoin Push
  • Existing Stablecoin Models Are Not 'Totally Fair,' Usual CEO Says
    Existing Stablecoin Models Are Not 'Totally Fair,' Usual CEO Says
  • Leading stablecoins such as Tether’s USDT and Circle’s USDC currently do not pay out interest to holders, even amid a rising-rate environment, because doing so would strengthen the case that such stablecoins are unregistered securities. Ondo says that’s why the company is only targeting institutional investors designed as both accredited investors and qualified purchasers, a move that exempts Ondo from registering the product with the Securities and Exchange Commission (SEC).

    “There is no regulatory gray area with OMMF. We structured it as a security,” Ondo Finance founder and CEO Nathan Allman told CoinDesk in an interview. “Stablecoins were not designed to be able to pay out interest in a way that is compatible with securities laws. They’re a zero-interest rate phenomenon.”

    According to the project’s website, OMMF lists an APY of 4.5%, in line with what publicly traded money market funds are currently yielding.

    Stablecoins have also faced heat due to the fragility of their pegs. Terra’s algorithmic stablecoin UST collapsed in dramatic fashion last May, and even Circle’s asset-backed stablecoin USDC depegged amid last month’s Silicon Valley Bank crisis.

    “Money market funds have a constant $1 NAV [net asset value],” explained Allman. “We’re also targeting holding a few percent of the fund’s assets in stablecoins. That way, investors can get in and out.”

    Allman declined to give a specific launch date for Ondo’s tokenized money market fund, saying it would go live “soon” and that the company was currently “in the process of onboarding clients.”

    Simply DeFi

    Security tokens like Ondo’s OMMF have seen a surge in interest as startups and institutional investors alike are exploring ways to migrate traditional financial assets on-chain through tokenization. Crypto enthusiasts say innovations like smart contracts and blockchain technology can modernize outdated financial plumbing and democratize investing, but such innovations have also faced scrutiny by critics, who say such innovations are thinly-veiled attempts at skirting securities laws.

    “We designed OMMF in a way that makes it composable with on-chain infrastructure,” says Allman. “Because the token is composable with DeFi, you can lend against it permissionlessly.”

    Enter Flux Finance, a decentralized finance protocol backed by Ondo that functions as a permissionless touchpoint and, crucially, makes it accessible to retail investors. Allman says one way retail investors can access OMMF’s yield without owning the security outright is by lending non-yield stablecoins like USDT and USDC into Flux, a protocol he describes as “similar to Aave and Compound” but without the overcollateralization. Then, whitelisted institutional clients can borrow the stablecoins in the Flux pool and mint OMMF, pocketing a small spread and paying out some yield to the protocol, which is passed onto retail investors.

    “It’s really just DeFi,” added Allman. “This is what all of DeFi enables: the creation of financial services that are not operated by financial institutions.”

    Edited by Aoyon Ashraf.


    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Tracy Wang

    Tracy was the deputy managing editor at CoinDesk. She owns BTC, ETH, MINA, ENS and some NFTs.

    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.