Introduction
Real-world assets (RWA) have been a hot topic in DeFi recently. Several protocols are being built around the goal to bring RWA on-chain. What these protocols are doing is tokenizing RWAs, which can be securities, real estate, loans or mortgages, receivables, or even tangible assets of high value, such as jets and yachts. It is expected that transporting RWA onto the blockchain will create a value worth trillions of dollars.
One of the first cases of RWA DeFi happened in 2021, when Societe Generale, a large multinational financial services company, raised $30 million using its AAA rated bonds. (AAA or triple-A is the highest credit rating issued by rating agencies.) It worked in the following way. An investment arm of SocGen called SG-Forge accepted the ownership of OFH bonds from SocGen. Then, it used those bonds as collateral to MakerDAO to mint DAI which was converted to fiat. The fiat funds were transferred to SocGen.
What does Ondo Finance do?
Now, another protocols with the big mission of bringing institutional-grade products and services to retail investors. They do it by creating funds, protocols, services, and intelligence & insights. At the time of writing, Ondo Finance offers three products - Ondo Short-Term U.S. Government Bond Fund (OUSG), Ondo Short-Term Investment Grade Bond Fund (OSTB), and Ondo High Yield Corporate Bond Fund (OHYG).
All these funds are backed by real ETFs (exchange-traded funds); these are the same funds in which big financial institutions, such as hedge funds or asset management firms invest. OUSG tracks the performance of the ETF invested in short-term US Treasuries. US Treasury bills are among the most liquid and most safe securities in the world. That’s why OUSG gives lower return than other Ondo products. At the moment, its estimated yield-to-maturity is 4.94%.
OSTB is very much like OUSG in that it invests funds in investment-grade short-term bonds. However, the risk profile of the product is a bit higher than the latter, and the weighted average duration is longer than that of OUSG. It correspondingly offers a higher return with its estimated yield being at 5.52% currently.
OHYG has the highest risk of all three but also offers the best return (8.30% currently). It tracks the performance of the ETF invested in below investment-grade, high yield bonds.
