Detailed explanation of Ondo Finance mechanism Comparative study with local Chinese projects Part 2

Ondo Finance uses U.S. Treasury bonds and money market funds, leveraging Reg D/Reg S compliance, to provide secure, low-risk, yield-bearing tokenized assets with global accessibility.

Its multi-phase strategy spans OUSG, USDY, OMMF launches to Ondo Chain, embedding KYC/AML and whitelist controls directly at the blockchain protocol layer for compliance scalability.

By deeply integrating with public chains and DeFi protocols, Ondo ensures tokenized assets are composable, liquid, and usable, bridging traditional finance and decentralized ecosystems worldwide.

Ondo Finance leads U.S. RWA tokenization with compliant U.S. Treasury-backed assets, deep DeFi integration, and Ondo Chain infrastructure—offering a model for global on-chain finance and China’s RWA evolution.

3 . Ondo Finance’s asset on-chain mechanism: A detailed explanation of the technical path and compliance framework for US Treasury bond tokenization

Ondo Finance’s asset on-chain path reflects the full-process closed loop of a compliant RWA project. Its strategic core is to introduce highly stable, low-risk US dollar-denominated assets into the global crypto ecosystem through a compliant architecture and on-chain issuance mechanism.

3.1 Asset Selection

First, in terms of asset selection , Ondo uses U.S. Treasury bonds, short-term bonds and money market funds (MMFs) as its core asset pool.

This type of asset not only has extremely high security and extremely low default risk, but also provides predictable returns linked to U.S. Treasury yields, making it easier to match regulatory requirements.

By tokenizing such assets, Ondo can provide a low-risk and interest-bearing storage method for on-chain funds, expand the types of assets that DeFi can support, and allow international investors who cannot directly access the U.S. Treasury market to indirectly hold high-quality assets denominated in U.S. dollars.

3.2 On-chain Path

3.2.1 Off-chain asset acquisition

In the first step, Ondo will purchase U.S. Treasury bonds or target assets through U.S. registered investment advisors (RIAs) and licensed custodian banks, and these assets will be kept by regulated custodians (such as U.S. licensed trust companies) to ensure that off-chain assets are safe and traceable.

3.2.2 Legal structure establishment

In the second step, Ondo will first achieve the ownership and isolation of off-chain assets through a legal framework , whether it is US Treasury bonds, money market funds, or other regulated financial instruments that may be introduced in the future.

Typically, this step is accomplished by establishing an SPV (Special Purpose Vehicle) to ensure that the ownership, income rights, and operational risks of off-chain assets are separated from the Ondo entity and other assets.

This link provides investors with clear legal rights protection and lays a compliance foundation for subsequent on-chain mapping.

3.2.3 Issuing Coins on the Chain

Then it enters the on-chain mapping and tokenization stage.

Ondo maps the ownership rights of off-chain assets into on-chain tokens, using the ERC-20 standard to ensure their liquidity on Ethereum and compatible networks.

These tokens represent proportional shares of assets and can be transferred, staked, or used for other DeFi operations on the chain.

In this process, the design of smart contracts is crucial – it not only carries the logic of asset transfer and redemption, but also embeds permission control mechanisms related to compliance requirements .

3.2.4 Circulation Mechanism Design

The fourth step is liquidity and market access .

Ondo not only provides subscription and redemption services on its own platform, but also actively introduces tokenized assets into the external DeFi protocol ecosystem, such as the Flux lending platform, decentralized exchanges (DEX) and cross-chain bridging networks.

The goal of this strategy is to introduce low-risk assets that were originally confined to the off-chain into the high-liquidity environment on the chain, so that both institutional and individual investors can obtain profit opportunities within a compliant framework .

It is worth noting that Ondo plans to launch its own public chain in the future Ondo Chain forms a product strategy matrix by natively integrating cross-chain asset management and liquidity modules, reducing external docking costs.

4. Ondo Finance Compliance Framework Analysis: Reg D/Reg S Regulatory Path and Legal Risk Assessment

compliance at the core of the entire asset tokenization process .

In the United States, it is mainly issued through two registration exemption paths: Regulation D (Reg D) and Regulation S (Reg S) :

Reg D allows the private placement of securities to qualified investors in the United States without the need to register with the SEC, but must meet disclosure and information provision obligations and conduct strict KYC (Know Your Customer) and AML (Anti-Money Laundering) reviews.

Reg S applies to issuances outside the United States, targeting non-U.S. investors, exempting it from U.S. registration requirements, enabling Ondo to issue asset tokens simultaneously in global markets.

Ondo will establish an independent SPV or trust structure for each type of asset, and off-chain assets will be entrusted to regulated financial institutions to ensure that token holders have priority repayment rights in proportion to their off-chain assets.

a whitelist mechanism is implemented on the chain , allowing only the wallet addresses of qualified investors to participate in transactions and redemptions. From issuance to secondary market circulation, everything operates in a closed loop of legal and technical compliance .

Ondo’s planned self-built Ondo Chain is not just a technological upgrade, but a strategic extension that extends compliance directly to the protocol layer.

embedding KYC/AML verification, whitelist transfer control, cross-chain asset tracing and other modules at the bottom layer of the chain , Ondo is able to maintain compliance consistency while multi-chain interoperability.

This layout will help reduce legal friction when cooperating with external DeFi protocols and provide institutional guarantees for the introduction of more complex regulated assets (such as corporate bonds, real estate trusts, and structured notes) in the future.

Ultimately, Ondo is expected to evolve from an asset tokenization platform into a core hub for global compliant assets and crypto-native liquidity.

5. Ondo Finance DeFi Integration Strategy: How to Achieve Deep Integration of Traditional Assets and Decentralized Finance

Ondo’s core vision is not only to bring high-quality off-chain assets onto the chain, but also to make these assets composable, liquid, and reusable in the DeFi ecosystem .

This requires deep integration of off-chain compliant assets and on-chain native protocols at the product design level, while taking into account security, liquidity and regulatory requirements.

5.1 Token Standards and Composability

Ondo chose ERC-20 as the basic standard for asset tokenization, which allows tokenized products such as OUSG and OMMF to be directly connected with most Ethereum-compatible DeFi protocols.

In the smart contract, Ondo embeds whitelist transfer and permission management logic to ensure that compliance restrictions remain effective after entering the secondary market without destroying the basic composability properties of ERC-20.

5.2 Liquidity and Income Management Mechanism

Ondo collaborates with decentralized exchanges (DEXs) and automated market makers (AMMs) to establish trading pairs and liquidity pools for tokenized assets, reducing buying/selling friction for users.

Ondo also encourages qualified investors to use their assets for lending and leverage—for example, using OUSG as collateral to generate liquidity in lending protocols like Flux . This model not only improves asset utilization efficiency, but also allows low-risk off-chain assets to become part of an on-chain profit strategy.

5.2 Cross-chain circulation and asset bridging

Ondo makes full use of cross-chain bridge technology to expand tokenized assets to multi-chain ecosystems such as Polygon, Solana, Base and other networks.

In the future, with the launch of Ondo Chain , this cross-chain functionality will transition from external integration to native functionality, providing a smoother user experience when accessing Ondo products across different chains. Furthermore, Ondo Chain is expected to automatically perform KYC/AML verification during cross-chain transfers, ensuring that compliance is not compromised by inter-chain flows.

In terms of risk management, Ondo has introduced a dual monitoring mechanism on-chain and off-chain .

Off-chain , the custodian verifies the net asset value (NAV) daily, while on-chain, oracles regularly update price information to prevent arbitrage or systemic risk caused by information delays. This mechanism ensures that DeFi protocols can perform calculations and settlements based on the latest off-chain data when interacting with Ondo assets .

Ultimately, Ondo is trying to build a ” compliant version of on-chain funds Lego ” – investors can freely combine tokenized assets with various DeFi protocols like using USDC and wETH , while meeting legal requirements, thereby opening up the value cycle of traditional finance and decentralized finance.

6. Ondo Finance Business Model Analysis: Multi- chain Deployment Strategy and Ecosystem Partner Network Construction

Ondo’s core market strategy is to build a global on-chain compliant asset hub at the balance between compliance and innovation .

It not only provides an on-chain channel for off-chain assets, but also becomes the main provider of liquidity and usage scenarios for these assets on the chain.

This strategic path determines that Ondo’s expansion is not simply about pursuing scale, but emphasizes the quality and sustainability of its ecological layout.

6.1 Market Focus and Brand Building

Ondo’s initial market focus is on the United States and major offshore financial centers (such as Singapore and the Cayman Islands). By leveraging the Reg D/Reg S dual-path issuance model, it will quickly establish a credibility base with institutional and high-net-worth clients.

By issuing low-risk, highly transparent products such as OUSG (tokenized U.S. Treasury Fund) and OMMF (tokenized money market fund), Ondo has taken the lead in gaining trust in the compliant asset tokenization track, laying the foundation for subsequent expansion into other asset categories.

6.2 Product Matrix and Network Effects

Ondo uses a two-tier architecture of ” core product + protocol interface ” to expand its influence.

The core products cover basic tokenized assets such as government bonds and money market funds, and the protocol interface is deeply integrated with mainstream DeFi protocols (such as Flux lending, Balancer, and Uniswap), making Ondo assets highly composable.

As more developers and financial institutions access Ondo’s interface, the demand and liquidity of its assets will grow exponentially , thus forming a network effect.

6.3 Cross-chain and infrastructure strategy

Ondo is not limited to the Ethereum ecosystem, but is actively deploying multi-chain distribution.

For example, cross-chaining OUSG and OMMF to high-performance networks such as Polygon, Solana, and Base can reduce user costs and expand asset coverage.

In the future, the launch of Ondo Chain will become a strategic turning point – it is not only a high-performance public chain, but also an infrastructure for the cross-chain flow of compliant assets , which can directly embed compliance functions such as KYC, AML, and whitelist control into the chain-layer protocol .

This will greatly reduce the compliance friction of cross-chain asset circulation and give Ondo a core position in the global compliant asset network.

6.4 Institutional Cooperation and Ecological Alliance

Ondo actively establishes partnerships with custodian banks, compliance auditing agencies, and oracle service providers (such as Chainlink) to ensure the synchronization and security of on-chain and off-chain data and capital flows .

On the DeFi side, Ondo has reached in-depth cooperation with leading protocols to incorporate tokenized assets into diversified scenarios such as lending, derivatives, and structured products, allowing these assets to truly “live” on the chain.

In the long run, Ondo’s goal is not only to provide asset tokenization products, but also to build a full-stack ecosystem covering asset issuance, circulation, risk management, and compliance supervision .

Once Ondo Chain matures and forms a large-scale network effect, it will be able to attract global compliant asset issuers to migrate to its network, thereby reversely promoting the expansion of the on-chain compliant financial ecosystem.

Overall, Ondo’s market strategy and ecosystem expansion follows a three-step approach:

establishing institutional trust through a robust USD asset portfolio; accelerating global expansion through a multi-chain and regulatory compliance approach; and ultimately, establishing a closed-loop ecosystem through its own blockchain and comprehensive product portfolio

This strategy not only provides clear timeline objectives but also fully considers the regulatory and technical differences across markets, thereby securing a first-mover advantage in the global RWA market.

〈Detailed explanation of Ondo Finance mechanism Comparative study with local Chinese projects Part 2〉這篇文章最早發佈於《CoinRank》。