tl;dr
Ondo Finance and BlackRock are forging a path that will benefit all retail investors, and some institutions too.
Market Snap
Market Wrap
The average yield on all US Treasuries is back to 5% for the first time since 2007, increasing the deficit and fuelling a further rise in the $40 TRILLION in debt that the US now owes, a debt that can never be repaid.
Curious Cryptos’ Commentary – Ondo Finance, BlackRock, and tokenisation innovation
Ondo Finance is an RWA (real-world) asset platform that allows financial products to be represented onchain, focussed so far on US Treasuries, money-market funds, and stocks.
An investor deposits USDC (preferably not USDT) onto the platform and mints a token that is representative of a traditional financial product, e.g. Apple shares have the ticker AAPLon.
Ondo will swap the USDC for fiat and acquire the relevant asset to hold as collateral. Dividend payments are rolled into the token value but note that holding the tokenised stock does not confer the same legal rights as holding the stock itself. A prime example is that token holders do not receive the right to vote at the AGM, a small price to pay in my opinion, though Ondo's Broadridge tie-up now allows holders to indicate voting preferences.
The change in value of the token will very closely mimic the change in the underlying stock though there will be a small tracking error due to factors such as liquidity. The tokenised stock is composable 24/7 in any DeFi platform. It is also tradeable 24/7, a key advantage compared to the limited trading hours for traditional stock markets.
Redemption is in the form of USDC by burning the stock token.
BlackRock needs little introduction. With over $15 TRILLION of AUM (assets under management) it is the world’s largest investment manager, taking in fees from its large suite of ETF offerings. Note that BlackRock itself doesn’t own the underlying assets, the ETFs own the assets, held by a custodian on behalf of their shareholders. Every time someone displays their ignorance by claiming that BlackRock is loading up on BTC is another opportunity to marvel at the idiocy of some.
Larry Fink, co-founder, Chairman, and CEO of BlackRock, has long been a vocal supporter of the tokenisation revolution. Indeed, until he became convinced on this topic, his attitude towards cryptos in general was neutral to sceptical. Now that BlackRock is earning nice fees on the world’s largest spot BTC ETF, he must be pleased with his pro-crypto pivot, a feeling familiar to everyone else who makes the same journey.
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Ondo has announced an initiative in collaboration with BlackRock called Ondo Intelligent Portfolios:
“Today we're introducing Ondo Intelligent Portfolios — a suite of professionally designed investment portfolios, each built into a single onchain token. The first three portfolios launched are based on portfolio strategies developed by BlackRock for Ondo, marking the first time exposure to such portfolio strategies have (sic) been made available to onchain investors.”
Investors can buy a token that represents an investment strategy that is encoded in a smart contract. Any changes to the underlying assets are made automatically by the smart contract. Your token represents your share of the assets. Those changes are visible onchain, all token flows are recorded onchain, and there is 24/7 trading of the tokens representing the portfolio. Those tokens are fully composable in any DeFi application.
These are the starting options based on strategies created by BlackRock:
As more assets move onchain, the scope to create ever more detailed and specific investment strategies with Ondo Intelligent Portfolios scales up too.
The democratisation of TradFi is happening right here, right now, reflected in the 35% rise in the value of ONDO this week alone.
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Why does this matter?
Source: https://app.rwa.xyz/
The benefits of tokenisation are legion for investors and businesses alike. Eventually, and that day gets ever closer, every asset will be onchain and tradeable 24/7 in almost any size you like, down to mere cents perhaps. Detailed and successful investment strategies will be open to all, not just those who can afford to pay big fees to the middlemen. The cost of capital will be materially lower, raising productivity, and making us all wealthier.
Soon, tokenised stocks will be available through your normal banking or investment app – investors won’t even need to know or understand the underlying mechanics, much like today’s investors have little interest in the custody and settlement of their holdings, nor the vast repo market that is core to the stability of the financial world.
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For disclosure purposes, the CC Treasury has been a holder of ONDO, the governance coin for Ondo Finance, since the summer, stored securely off-site with multi-signature protection which is true of all the cryptos held as investments by CC. Any wrench attack on the employees of Curious Cryptos Ltd. will simply damage your wrench with no upside and a lengthy prison sentence to boot.