The Core RWA Narrative As the RWA narrative gains traction, the U.S. has released several policy reports. Notably, the White House report from the President's Working Group on Financial Markets, titled "STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY," endorsed tokenized securities, stablecoins, and programmable settlement as cornerstones of the future financial system, explicitly mentioning Ondo Finance. By analyzing Ondo Finance's progress, we can dissect the key narratives and future directions of the RWA sector.

The Foundational Narrative and Products of RWA Ondo Finance positions its ultimate goal as "a more open, efficient, and globally accessible financial system powered by tokenized real-world assets." It's advancing toward this goal by issuing tokenized treasuries and yield-bearing stablecoins for global investors, and by building the first on-chain financial protocols to support them. Its product suite represents the current foundational narrative of RWA: Tokenized Treasuries: Ondo Finance issues OUSG, a token backed by U.S. Treasuries. Purchasing OUSG is equivalent to holding a share in a fund that invests in short-term T-Bill portfolios. The token's intrinsic value increases with the fund's Net Asset Value (NAV), effectively auto-compounding interest daily. OUSG's underlying assets include not only BlackRock's BUIDL fund but also treasury funds from Franklin Templeton, Wellington, and Fidelity. This is the most easily accepted RWA asset class for traditional bond investors. With a current market size of $6.8 billion, tokenized treasuries are the second-largest non-stablecoin RWA asset class (the strict RWA classification of private credit, which ranks first, is still debated). Besides Ondo, other key protocols in this space include Securitize and Hashnote. Yield-Bearing Stablecoins: Ondo Finance issues USDY, a yield-bearing stablecoin backed by short-term U.S. Treasuries and bank deposits. Yield is accrued daily to the token's value, allowing holders to earn returns automatically without needing to stake or lock their assets. In May of this year, the market cap for yield-bearing stablecoins surpassed $11 billion, a 7x increase from $1.5 billion at the start of 2024. In addition to USDY, Ethena's market cap has also grown by over 70% in the last 30 days, climbing to the third position. Yield-bearing stablecoins represent a more RWA-native issuance model that warrants close attention. RWA Lending Protocols: Ondo Finance launched Flux Finance, a decentralized lending protocol based on Compound V2's asset pool model. It allows users to use high-quality RWA as collateral to borrow stablecoins or to lend out idle stablecoins to earn interest. The RWA asset class has already surpassed $25 billion, and its liquidity is sufficient to support large-scale lending protocols. We anticipate not only more ecosystem-specific protocols like Flux Finance but also the emergence of cross-chain lending protocols as more RWAs are brought on-chain.

Next-Phase Product Directions for RWA Multi-Asset Issuance & Trading Platforms: From issuance to trading, the market needs a two-sided platform to tokenize and bring thousands of publicly traded securities (stocks, bonds, ETFs) on-chain. This would allow users to trade 24/7 and leverage DeFi tools within the ecosystem. Ondo Finance's Global Markets initiative is an attempt in this direction, planning to introduce 100 tokenized U.S. stocks initially. This represents an exchange-level opportunity where online brokerages, CEXs, and DEXs will all compete. We also expect native issuance and trading platforms to emerge and perform strongly. Shared Liquidity Protocols: By using collateral tokens as a shared liquidity layer across different issuers, these protocols can provide instant liquidity for T-Bill tokens (or other assets) issued by third parties. This creates an instant redemption mechanism for the entire market and is an effective way to improve the capital efficiency of RWA. Nexus is already exploring this direction. RWA-Collateralized Layer 1s: The Proof-of-Stake (PoS) mechanism is naturally suited for RWA. However, existing infrastructure has poor portability, creating a need for a dedicated PoS Layer 1 designed for institutional-grade RWA issuance and trading. On such a chain, validators could stake not just crypto assets but also highly liquid RWAs, thereby reducing the impact of crypto market volatility on network security. Ondo Chain, Mantra, and Polymesh are already making attempts in this area. More Open Onboarding Mechanisms: One of Ondo Finance's shortcomings is its relatively closed KYC process, which leads to a limited number of asset-holding addresses. For example, with OUSG's $700M market cap, the top 10 addresses hold over 90% of the assets. Its lending protocol, Flux Finance, has also not surpassed $100M in TVL. Future RWA products need to find a better way to balance KYC/compliance with openness to unlock true on-chain liquidity.

In conclusion, we believe RWA is the key battleground for bridging TradFi and DeFi, but the market is still in its nascent stages. Ondo Finance's product suite has laid the initial groundwork for this vision. We believe the next phase of the RWA narrative will progress through the Asset Issue Layer -> Asset Trading Layer -> Liquidity and Derivatives Layer, giving rise to more dedicated L1s, platforms, and native RWA DeFi protocols. This will enable traditional issuers to launch compliant on-chain products, ultimately connecting institutional-grade assets to the programmable and interoperable on-chain world.