DeFi Protocol Ondo Finance Sets Up Tokenized Corporate Bonds With Over 8% Yield on Stablecoins
The on-chain funds are directly invested in exchange-traded funds managed by BlackRock and Pimco.
Decentralized finance (DeFi) platform Ondo Finance has launched three products designed to allow stablecoin holders globally to invest directly in bonds and U.S. Treasurys.
Ondo estimated the regulated products could attract more than $100 billion in stablecoins that currently may not be earning yields for their holders.
On Ondo’s site, the OUSG fund invests in short-term government Treasurys, earning 4.2% per annum; the OSTB invests in short-term bonds, earning 5.45% per annum; and OYHG invests in high-yield corporate bonds, paying out 8% per annum to depositors. Fees for these funds are currently listed at 0.15%.
The funds deposited on Ondo will further be invested in relevant exchange-traded funds offered by BlackRock and Pimco. Coinbase Custody will custody any stablecoins the fund holds, while Coinbase Prime will handle conversions between stablecoins and fiat.
The so-termed “blue chip” DeFi protocols such as Compound and Aave yield about 1%-2% per year by investing in liquidity pools belonging to projects based on blockchains such as Ethereum or Solana.
Newer uncollateralized lending protocols, on the other hand, offer yields in the 7%-10% APR range, but these loans have been “experiencing higher-than-expected default rates” and are proving to be less transparent and riskier than many traditional bonds with comparable yields, according to Ondo.
“Large stablecoin holders, including start-ups and [decentralized autonomous organizations], are faced with a choice between having their purchasing power eroded away by inflation or taking too much risk with the current set of on-chain yield offerings," Nathan Allman, founder of Ondo Finance, said in a post.
The funds will process daily subscriptions and redemptions in stablecoins as well as traditional fiat, and investors will receive tokens on the Ethereum blockchain representing their ownership.
Over the past few years, crypto protocols such as Terra and several others advertised yields of over 20% that attracted billions in dollars from crypto hopefuls. These products eventually imploded because the model was unsustainable and often depended on printing token “rewards” that had no intrinsic value.
Tokenized RWA investment products let cryptocurrency owners get exposure to rising yields in traditional financial markets without exiting the digital asset ecosystem.
UPDATE (Jan. 11, 16:16 UTC): Adds background about getting real-world assets on the blockchain.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, 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.