Today crypto startup Ondo Finance says it’s launching a tokenized money market fund with the OMMF token. The latest token is a follow-up to OUSG, Ondo’s tokenized exposure to U.S. Treasuries, which it launched two months ago. Ondo describes itself as a decentralized investment bank.
OMMF offers two benefits, particularly to crypto investors with large stablecoin balances – a better return and 24/7 trading. When interest rates were low, DeFi lending protocols like Aave and Compound offered attractive returns on stablecoin deposits. Currently, those returns are around 2.2% compared to 4.5% upwards on money market funds.
Ondo has yet to announce which money market fund will be tokenized. Its Treasury tokens are backed by ETFs from Blackrock and PIMCO.
The OMMF token will be worth exactly $1 and will distribute interest to token holders daily as new tokens. We’re a little curious about the Ethereum gas costs involved in that.
“What stablecoins have done for cash, OMMF will do for money market funds, unlocking their potential to be used not just as a store of wealth—their primary current use—but also as a globally-accessible collateral and settlement alternative,” said Nathan Allman, Founder and CEO of Ondo Finance.
Currently, the target market is wealthy crypto investors. Ondo’s funds are not SEC licensed, as it says it only targets qualified purchasers. That’s a higher threshold than typical accredited investors, requiring a person to have more than $5 million in investments. The tokens are only tradable between whitelisted holders who have been through know your customer (KYC) processes.
The OMMF tokens can be used for other DeFi activities such as trading, lending and settlement, but the relevant smart contracts must go through a compliance review to ensure they adhere to the whitelist. It just so happens that Ondo has its own DeFi lending protocol, FluxFinance, which supports permissioning and has a total value locked of $52.5 million, including $28.9 million of the Treasury tokens OUSG.
Looking at the OUSG token, so far, they have a market capitalization of $68.5 million with 26 token holders. That’s quite a bit higher than Swiss competitor Backed Finance, which avoids dealing with U.S. citizens. Its short term U.S. Treasury token BIB01 has a market cap of just $500,000.
A year ago, Ondo raised a $20 million funding round led by Peter Thiel’s Founders Fund and Pantera Capital, with other investors including Tiger Global and Coinbase Ventures. It has since pivoted, but at that stage, it was working with DAOs to provide liquidity and boasted Terra, Frax and Fei as partners. Terra started the crypto crash, Fei was hacked a couple of weeks before that event, and Frax is pivoting from a partially algorithmic stablecoin to a fully backed one. Hopefully, OUSG and OMMF will be safer bets.