DeFi protocol Ondo Finance sets up tokenized corporate bonds with a yield of over 8% on stablecoins

Decentralized finance (DeFi) platform Ondo Finance has launched three products designed to allow stablecoin holders worldwide to invest directly in bonds and U.S. Treasuries.

Ondo estimates that the regulated products could attract more than $100 billion in stablecoins that may not currently generate returns for their holders.

According to Ondo’s website, the OUSG fund invests in short-dated government bonds and earns 4.2% per year; the OSTB invests in short-term bonds and earns 5.45% per year; and OYHG invests in high-yield corporate bonds and pays out 8% a year to depositors. Fees for these funds are currently 0.15%.

Funds deposited on Ondo are also invested in relevant exchange traded funds offered by BlackRock and Pimco. Coinbase Custody holds all stablecoins held by the fund, while Coinbase Prime handles the conversion between stablecoins and fiat.

The so-called “blue-chip” DeFi protocols like Compound and Aave generate around 1% to 2% per year by investing in liquidity pools belonging to blockchain-based projects like Ethereum or Solana.

Newer unsecured lending protocols, on the other hand, offer yields in the 7% to 10% APR range, but these loans have “experienced higher than expected default rates” and are proving to be less transparent and riskier than many traditional bonds with comparable yields, according to Ondo.

“Major stablecoin holders, including startups and [decentralized autonomous organizations]face a choice between having their purchasing power eroded by inflation or taking too much risk with the current on-chain yield offerings,” said Nathan Allman, founder of Ondo Finance, 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.

In recent years, crypto protocols like Terra and several others have touted returns of over 20%, attracting billions of dollars from crypto hopefuls. These products eventually imploded because the model was unsustainable and often depended on printing tokenized “rewards” that had no intrinsic value.

The story goes on

Ondo’s new offering also underscores a growing trend of bringing traditional, so-called real-world assets (RWA) such as bonds, real estate, and consumer credit onto the blockchain, an effort spearheaded by DeFi giant MakerDAO and lending protocols like Credix and Goldfinch will.

Tokenized RWA investment products allow cryptocurrency holders to benefit from rising returns in traditional financial markets without having to leave the digital asset ecosystem.

Analysts predicted in their 2023 outlook that the integration of real assets with decentralized finance will be one of the key themes in crypto.

UPDATE (January 11, 16:16 UTC): Adds background on getting real-world assets into the blockchain.

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