Capital markets News

Has Ondo cracked the code on 24/7 tokenized money market fund redemptions?

Ondo Finance Franklin Templeton WisdomTree Wellington Management OUSG

Tokenization startup Ondo Finance has launched a novel way to enable the 24/7 redemption of third party money market funds (MMF). It has collaborated with Franklin Templeton, WisdomTree, Wellington Management (Sg) and FundBridge Capital to include their tokenized money market funds (MMF) as collateral for its own MMF, OUSG. As part of its new Ondo Nexus offering, if someone wants to redeem the Franklin Templeton FOBXX, they essentially sell it to Ondo which is happy to hold it in the short term, given it can be used as collateral for OUSG.

Until now OUSG was primarily backed by BlackRock’s tokenized MMF BUIDL.

This looks like a win-win for both Ondo and the asset managers. It solidifies Ondo as an innovator, and we would be shocked if money wasn’t passing its way for providing the service to the asset managers, even if it means the asset managers wave some of the fees they might otherwise charge Ondo.

Take Franklin Templeton. Its terms say the FOBXX MMF can only be redeemed during working hours and the money can take up to seven days to reach your account. If users favored other funds because they could be redeemed faster, not any more. This was FOBXX’s biggest drawback. It is more highly regulated than other tokenized funds, so theoretically should be safer. FOBXX also doesn’t have BlackRock’s BUIDL massive $5 million minimum investment and is accessible by retail investors. Plus, it’s available on far more blockchains.

Turning to Wellington Management, in Singapore it has collaborated with Singapore’s FundBridge Capital and Libeara to issue a tokenized USD MMF on Ethereum. Libeara is the tokenization startup founded by Standard Chartered’s SC Ventures.

A solution for Asian settlement challenges?

We suspect that Ondo Nexus may prove useful in Asia, where the move by traditional U.S. markets to one day (T+1) settlement has created challenges in crossing timezones, effectively requiring FX on a T0 (same day) basis. Except FX doesn’t settle that quickly.

Another SC Ventures startup, Zodia Markets, is trialing using stablecoins to address these new settlement challenges experienced by Asian traditional finance firms.

At the same time, there’s always a reluctance to pre-fund settlement because the money doesn’t earn a return. However, if one could park the cash in a tokenized MMF, and switch it to stablecoins precisely when needed, that could be an interesting solution. And is speculation on our part.

Tokenized MMF redemptions

OUSG itself can already be redeemed using the USDC stablecoin. This is made possible because USDC issuer, Circle, is willing to buy BlackRock’s BUIDL 24/7, and BUIDL makes up most of OUSG’s reserves. In turn, Circle has a close relationship with BlackRock, which manages most of its stablecoin reserves.

Late last year Ondo announced a deal to support redemptions in PayPal stablecoins soon.

“We are excited to further strengthen our relationships with Franklin Templeton, WisdomTree, Wellington Management and Fundbridge Capital, while driving the convergence between traditional finance and DeFi,” said Nathan Allman, CEO of Ondo Finance. “By diversifying our eligible collateral, we are building modular infrastructure that enables shared redeemability of tokenized Treasuries to stablecoins across products and supports a wide range of future tokenized financial offerings.”

Ondo is quite lightly regulated for a company with almost $640 million in assets under management. OUSG, the token that’s part of today’s announcement, has assets of $253 million. While the fund is U.S. based, it relies on regulatory exemptions so is only available to accredited investors. Its other token, USDY, is also an exempt fund and as a result is only available to non-U.S. investors. USDY LLC is registered with FinCEN.