Founder
October 5, 2025
17 min read
This report analyzes the burgeoning architecture of a new on-chain financial system, using the symbiotic relationship between Ondo Finance ("asset issuer"), Coinbase ("digital prime broker and distributor"), and stablecoins ("native settlement currency") as a central case study. The report posits that the tokenization of Real-World Assets (RWAs), particularly low-risk securities like U.S. Treasury bills, constitutes a critical bridge for institutional capital to enter decentralized finance (DeFi).
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The analysis also covers the strategic implications of the entry of the existing financial messaging network, Swift, into the blockchain space, creating a potential conflict zone between permissioned "walled gardens" and the permissionless "open internet of value." A comprehensive risk assessment concludes that while the technological promise is significant, the path to mass adoption is fraught with complex regulatory hurdles, novel technical vulnerabilities, and latent systemic risks inherent in the nature of stablecoins and interconnected protocols.
The overall conclusion is that the future of finance will not be a wholesale replacement of the legacy system, but rather a hybrid model where the efficiency and accessibility of public blockchains are integrated with the trust and scale of traditional institutions. This process will be defined by both intense competition and necessary collaboration.
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Ondo Finance's strategy extends beyond being a mere product issuer; it aims to architect a vertically integrated ecosystem designed to bring institutional-grade financial products to public blockchains.
Ondo's initial go-to-market strategy has been strategically focused on tokenizing one of the world's most trusted and liquid assets: U.S. government debt. This approach minimizes product risk while concentrating innovation on the "packaging"—that is, the token itself—and the distribution mechanism. In this context, the company's two flagship products are analyzed.
This product is a tokenized security representing a share in a fund that primarily invests in short-term U.S. Treasury ETFs, offered to qualified purchasers in the U.S. Critically, the fund's largest position is BlackRock's BUIDL fund, demonstrating a strategy of leveraging Traditional Finance (TradFi) giants rather than competing with them. Custody of the assets is handled by Clear Street, and the product is regulated under the U.S. Securities and Exchange Commission's (SEC) Reg. D exemption.
This product is a yield-bearing tokenized note collateralized by short-term U.S. Treasury bills and bank demand deposits, specifically designed for non-U.S. individuals and institutions. It functions as a stablecoin alternative that offers a native yield. Custody of the assets is provided by Morgan Stanley, and it is regulated by FinCEN (Financial Crimes Enforcement Network) as a Money Services Business.
The strategic positioning of these products forms the cornerstone of Ondo's go-to-market approach. The company achieves success not by creating new and exotic assets, but by creating more efficient, accessible, and programmable "packaging" for traditional finance's most trusted assets. The adoption of crypto assets by institutional investors is hindered by concerns over trust and regulatory uncertainty. U.S. Treasury bills, especially those managed by giants like BlackRock, represent the pinnacle of financial credibility. By tokenizing shares of BlackRock's BUIDL fund, Ondo is not selling its own asset management expertise, but rather the credibility of BlackRock, packaged in a superior technological format. This "trust arbitrage" de-risks the product for institutions while allowing Ondo to focus on its core competencies: blockchain engineering and ecosystem building.
Three major players stand out in the tokenized U.S. Treasury products market: Ondo's OUSG, BlackRock's BUIDL, and Franklin Templeton's BENJI. These products offer various features catering to different investor profiles and strategies.
In terms of market capitalization, BlackRock's BUIDL fund leads with approximately $2.5 billion. It is followed by Ondo's OUSG with about $729 million and Franklin Templeton's BENJI with $717 million, respectively.
The investment strategies of these funds also differ:
Ondo (OUSG) invests in short-term U.S. Treasury ETFs, with BlackRock's BUIDL fund being the predominant holding.
BlackRock (BUIDL) directly holds U.S. Treasury bills, cash, and repurchase agreements in its portfolio.
Franklin Templeton (BENJI) manages a portfolio consisting of U.S. government securities, cash, and repurchase agreements.
For custody, Ondo works with Clear Street LLC, while BlackRock collaborates with multiple institutions, including BNY Mellon, Anchorage Digital Bank, and BitGo. Franklin Templeton uses BNY Mellon and its own proprietary systems. The respective issuers are Ondo I LP, BlackRock/Securitize, and Franklin Templeton itself.
In terms of blockchain support, Franklin Templeton (BENJI) offers the broadest network, operating on eight different chains, including Ethereum, Solana, Polygon, and Avalanche. Ondo (OUSG) supports four blockchains (Ethereum, Polygon, Solana, and XRP Ledger), while BlackRock (BUIDL) is currently available only on Ethereum.
Ondo (OUSG) has set a management fee of 0.15%. For Franklin Templeton (BENJI), this rate is 0.20% (Net Expense Ratio), whereas BlackRock's (BUIDL) fees are not publicly disclosed as they are typically negotiated at an institutional level.
These products target different investor audiences:
Ondo (OUSG) is available exclusively to investors in the U.S. with "Qualified Purchaser" status.
BlackRock (BUIDL) is focused on institutional investors.
Franklin Templeton (BENJI) reaches a broader audience, catering to both retail and institutional investors residing in the U.S.
Both Ondo and BlackRock offer their products under the SEC's Reg. D exemption. In contrast, Franklin Templeton's fund is subject to a more traditional and comprehensive regulatory framework as an investment fund registered with the SEC under the Investment Company Act of 1940 (1940 Act).
Ondo is moving beyond being a simple product issuer to build its own infrastructure, aiming to control the entire RWA value chain. This move signals a much larger vision.
The development of a purpose-built Layer 1 blockchain marks a strategic turning point. This chain is designed as an "omnichain network for RWAs" and offers features that general-purpose chains lack, specifically tailored to institutional needs, such as built-in oracles for proof of reserve, permissioned validators to prevent front-running, and the ability for gas fees to be paid with RWAs.
This platform represents Ondo's expansion toward tokenizing a broader set of securities for non-U.S. investors, starting with over 100 U.S. stocks and ETFs. This transforms Ondo from a treasury-focused firm into a potential on-chain brokerage and market infrastructure provider.
The launch of Ondo Chain and Global Markets indicates that the company's long-term strategy is evolving toward becoming the "Bloomberg of RWAs." While issuing tokens on a third-party network like Ethereum is effective, it makes Ondo dependent on another network's fees, governance, and technical roadmap. By building Ondo Chain, they can optimize for the specific needs of regulated financial assets (e.g., compliance features, institutional validators). This creates a sticky ecosystem where they can capture value not only from their own products but also from transaction fees and services from other RWA issuers developing on their chain. This is a classic technology strategy: launch a network with a popular application like OUSG/USDY, then open the network as a platform to dominate the entire vertical market.
Let's examine how Coinbase is leveraging its unique combination of regulatory legitimacy, a massive user base, and a full-stack technology platform to position itself as an indispensable infrastructure provider for the RWA ecosystem.
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Base, Coinbase's Layer 2 network, is emerging as a premier hub for RWA tokenization. As an L2 built on Ethereum, it inherits Ethereum's security while offering lower transaction costs. Its direct integration into the Coinbase ecosystem provides a seamless user experience for millions of potential investors.
Coinbase's most significant competitive advantage is its user base of over 100 million Know Your Customer (KYC) and Anti-Money Laundering (AML) verified users. For security tokens and regulated RWAs that require strict investor verification, this pre-vetted user base is a turnkey distribution network that no other chain can easily replicate. This solves the "cold start problem" for identity and compliance in DeFi.
Coinbase is not just a chain but an end-to-end institutional platform. It offers custody services trusted by the largest asset managers (e.g., BlackRock for its Bitcoin ETF), prime brokerage services, and deep liquidity through its exchange. This full-stack offering provides a one-stop shop for RWA issuers.
The trust Coinbase has established with regulators and institutional giants like BlackRock creates a powerful self-reinforcing loop. Traditional finance firms do not hesitate to use Coinbase as a custodian, which in turn incentivizes RWA issuers to build on its infrastructure (Base). This facilitates access for Coinbase's large user base to these assets, creating a deep and liquid market.
This structure demonstrates that Coinbase is not merely a participant but is building the foundational operating system and distribution platform for this new financial paradigm. Apple built not only the iPhone but also the App Store, the payment infrastructure (Apple Pay), and the identity layer (Apple ID). Similarly, Coinbase provides the L2 blockchain (Base), the identity/KYC layer (100M+ users), the custody infrastructure (Coinbase Prime), and the primary liquidity venue (Coinbase Exchange). RWA issuers like Ondo are the "app developers" building on this operating system. This platform strategy allows Coinbase to capture value from the growth of the entire ecosystem, not just from the trading of a single asset.
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The integration of RWAs onto Base via the highly centralized and regulated Coinbase platform represents the ultimate blurring of the lines between Centralized Finance (CeFi) and DeFi. The original ethos of DeFi was permissionless and decentralized. However, RWAs, which are tied to legal jurisdictions and property rights, require permissioned access and KYC. By establishing a "regulated DeFi" hub on Base, Coinbase is creating a hybrid model: the assets are programmable and tradable on an open blockchain, but access is gated through a centralized, compliant entity. This pragmatic "CeDeFi" approach is likely the only viable path for institutional adoption, but it represents a significant departure from DeFi's pure origins.
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It is essential to understand in detail why stablecoins are an indispensable foundational layer for the RWA ecosystem, serving as a unit of account, medium of exchange, and primary on-ramp.
Fully-reserved and regulated stablecoins like USDC are the cornerstone of on-chain finance. Acting as a digital dollar, they enable 24/7 buying, selling, and settlement of RWA tokens without the waiting periods of traditional banking systems. For example, Franklin Templeton's fund allows investors to purchase shares of the fund using USDC.
The native presence of USDC on numerous blockchains, including Ethereum, Solana, and Base, makes it a universal settlement asset, providing interoperability and liquidity in a fragmented blockchain environment.
A critical tension is emerging in the market. Regulations such as the European Union's Markets in Crypto-Assets (MiCA) regulation and the proposed GENIUS Act in the U.S. aim to prohibit the payment of interest on stablecoins to prevent them from competing with bank deposits.
In response to this regulatory pressure, RWAs offer a "workaround." While payment-focused stablecoins like USDC are designed to be non-yield-bearing, RWA products like Ondo's USDY are explicitly designed as yield-bearing tokenized securities. The ability to seamlessly and inexpensively swap between USDC and USDY on-chain effectively allows users to hold a yield-bearing asset right up until the moment of payment.
This dynamic creates a new paradigm for institutional and retail cash management: "just-in-time" treasury management. In traditional finance, corporate treasury management involves managing a portfolio of cash, money market funds, and short-term bonds, with settlement delays between them. In the RWA ecosystem, a user can hold 99.9% of their liquid assets in a yield-bearing token like OUSG or USDY. When a payment needs to be made, a smart contract can automatically sell the exact required amount of the RWA token for USDC and transfer the USDC to the counterparty in a single atomic transaction. This minimizes idle cash and maximizes yield, creating a hyper-efficient treasury system that is impossible in traditional finance.
Furthermore, the dominance of USD-pegged stablecoins in the RWA ecosystem reinforces the global hegemony of the U.S. dollar in the digital age, a fact that has not gone unnoticed by other economic blocs. The vast majority of RWA and DeFi activity is denominated in USD stablecoins. This creates a constant global demand for the underlying USD-backed reserve assets (cash and Treasury bills), strengthening the dollar's role. The EU's MiCA regulation, with its strict limits on non-euro stablecoin transactions, can be seen not just as a consumer protection measure, but also as a strategic initiative to foster a euro-denominated on-chain economy and to counter "digital dollarization."
In this section, we will evaluate the move by Swift, the backbone of the current global financial system, to establish its own blockchain-based infrastructure and what this means for the new ecosystem being built on public chains.
Swift, in collaboration with over 30 global banks and technology partner Consensys, has announced a major initiative to add a blockchain-based shared ledger to its infrastructure.
The primary objectives of this project are to facilitate instant, 24/7 cross-border transactions of regulated tokenized value, thereby directly competing with the value proposition of stablecoins and public blockchains. By leveraging its existing network of over 11,000 institutions, Swift aims to provide a trusted, compliant, and scalable environment for tokenization.
Swift's network becomes a permissioned "internet of value" for its member banks, competing directly with the permissionless "internet of value" represented by public chains like Ethereum. This could bifurcate the market into a regulated institutional space and a more retail/crypto-native space.
Swift focuses on interoperability, acting as a bridge between its institutional network and various public and private blockchains. Their experiments with Chainlink's Cross-Chain Interoperability Protocol (CCIP) suggest this is a strong possibility. In this scenario, Swift does not replace public chains but becomes the primary on/off-ramp for its member banks to interact with them.
Swift's greatest strength is not its technology but its role as the global standard-setter for financial messaging. The current RWA ecosystem is fragmented across multiple blockchains (Ethereum, Solana, Polygon, etc.) without a single interoperability standard. Swift's core business is to create and enforce standards, such as ISO 20022. By building a shared ledger, Swift is attempting to define the standards for institutional tokenized assets. If they succeed, even assets on public blockchains may need to adopt Swift-compliant standards to be accessible to the global banking system, giving Swift immense influence even over ecosystems it does not directly control.
Whether it competes or collaborates, Swift's full-scale entry into blockchain technology is the single greatest validation of the RWA thesis, coming from the very heart of traditional finance. Blockchain, viewed for years by many in traditional finance as a marginal technology, is now being placed at the center of the future strategy of global finance's most central institution. This signals to every bank board and regulator in the world that tokenization is no longer a question of "if," but of "when and how." This will accelerate institutional investment, R&D, and regulatory engagement in the space, indirectly benefiting the entire RWA ecosystem, including players like Ondo and Coinbase.
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A comprehensive assessment of the regulatory, technical, and systemic risks that could derail the growth of the tokenized asset ecosystem must be conducted, and future regulatory expectations must be established.
The regulatory landscape is a mosaic of evolving rules. The EU's MiCA is the most comprehensive framework to date. While it provides clarity, it also imposes significant restrictions, such as a €200 million daily transaction limit for large non-euro stablecoins, which could stifle a USD-denominated RWA market in Europe. The U.S., meanwhile, is in a state of flux, where competing legislative proposals like the GENIUS Act create uncertainty for issuers.
The system's reliance on complex technology introduces novel points of failure not found in traditional finance.
Smart Contract Risk: Bugs or exploits in the smart contracts governing RWA tokens or DeFi protocols can lead to a total loss of funds.
Oracle Risk: The system relies on oracles (like Chainlink) to feed real-world data (e.g., asset prices) to the blockchain. A manipulated or failed oracle could trigger incorrect liquidations or protocol insolvency.
Custody and Wallet Security Risk: Breaches at the custodian holding the underlying physical assets (e.g., U.S. Treasury bills) or the theft of a user's private keys can result in irreversible losses.
Blockchain-Level Risk: While rare for major chains, risks such as a 51% attack could allow for transaction reversals or censorship, undermining the integrity of the ledger.
The interconnectedness of the ecosystem creates the potential for cascading failures.
A loss of confidence in a major stablecoin's reserves could trigger a "run," causing it to de-peg from its 1:1 value. Research has shown that the very arbitrage mechanisms designed to maintain the peg can actually accelerate a run during a crisis. Since stablecoins are the unit of account for the entire RWA market, a major de-peg would be a systemic crisis event.
While tokenization promises to enhance liquidity, the current on-chain markets for RWA tokens are still shallow compared to traditional markets. In a stressed scenario, the inability to sell large volumes of RWA tokens without crashing the price is a significant risk.
These risks reveal that the on-chain financial system is a tightly coupled "system of systems." The health of each component (the RWA protocol, the stablecoin, the oracle, the L1/L2 blockchain) depends on the others. A failure at any point in this value chain creates a domino effect. A USDC de-peg renders OUSG untradable. An oracle failure causes incorrect pricing of OUSG and wrongful liquidations in lending protocols. A bug in OUSG's smart contract could lead to the loss of its underlying assets. This interconnectedness means that risk is not additive, but multiplicative.
At the same time, firms are actively structuring products to navigate the gray areas of current regulations (e.g., structuring USDY as a "yield-bearing note" rather than an "interest-bearing stablecoin"). While this innovation allows new products to come to market quickly, it also invites future regulatory crackdowns. A regulator may later decide that these products are, in substance, equivalent to what they intended to restrict. This creates a significant "'stroke-of-a-pen' risk," where a new interpretation or rule could invalidate entire business models overnight.
The convergence of Traditional Finance and DeFi, exemplified by the Ondo-Coinbase model, is creating a parallel financial system characterized by 24/7 availability, programmability, and increased efficiency. This journey is progressing from crypto-native assets to the tokenization of the most trusted real-world financial instruments, with U.S. Treasury bills serving as a critical "bridgehead" asset class in this process.
The future landscape will be shaped by the interaction between permissionless innovation occurring on public blockchains and the permissioned, compliance-focused initiatives of incumbent institutions like Swift and its member banks.
The ultimate success of this new paradigm rests on three core pillars: achieving regulatory clarity that fosters innovation while protecting consumers, building a technologically sound and secure infrastructure, and ensuring seamless interoperability between the nascent on-chain world and the established traditional financial system. The path forward is not one of replacement, but of a complex and, at times, contentious integration.
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