Ondo Finance Meaning

Apr 18, 2024 | Updated Apr 18, 2024

Ondo Finance is a decentralized finance protocol that brings financial products and services on-chain through tokenization.

What Is Ondo Finance?

Despite its evolution over the years, traditional finance (TradFi) still faces issues in terms of liquidity, accessibility, and interoperability. And while DeFi solutions aim to solve these setbacks by enhancing transparency and accessibility, they are also riddled with their own set of problems. These challenges include overreliance on stablecoins and limited connectivity to the real economy. Ondo Finance (Ondo) bridges this gap through the tokenization of physical assets. So, what is it?

Ondo Finance is a real-world asset (RWA) tokenization project that integrates the traditional finance world with digital assets to enhance accessibility and liquidity. It is defined as an advanced decentralized finance (DeFi) platform that democratizes access to financial products and services, such as US treasury-backed tokens and other stable income-generating assets, via high-quality on-chain offerings. Think of it as an open-source, permissionless, decentralized bank.

Nathan Allman and Pinku Suran co-founded the project in 2021. It blends the best of both DeFi and TradFi to bring institutional-grade financial products and services on-chain. The platform is open-source and community-driven, intending to achieve decentralized governance.

How Does Ondo Finance Work?

Ondo is split into two arms – asset management and technology. The asset management arm is responsible for the creation and management of tokenized financial products and RWAs. On the other hand, the technology division specializes in creating DeFi protocols or infrastructures, which is essential to the project’s overall scalability and functioning. It uses these two arms to coordinate compliance requirements and involved parties, thereby improving access to RWAs and financial services. In return, it promotes financial inclusivity.

One of its key features is the risk-isolated Vaults concept that segregates risks to cater to different appetites. This feature also allows lenders to determine their preferred acceptable collateral and loan-to-value thresholds.

In addition, it uses a unique subscription mechanism to allow liquidity providers to engage in fixed- or variable-yield investments. This allows users to customize investment profiles that cater to their risk appetites.