Unsurprisingly, I'm a huge enthusiast of tokenization. I find the concept very intriguing and the possibilities it entails are endless.
Tokenization should be pursued on all fronts, in my opinion, but one that has caught my eye recently is real-world assets tokenization (RWA).
It's not a new concept by any means, and there are more than a few projects looking to explore that niche, but, in my humble opinion, we have yet to reach the full potential that the tokenization of real-world assets has to offer.
One of the most recent projects that promises to revolutionize the world of RWA is Ondo Chain, the Omnichain network for RWA, as they like to call themselves.
Ondo Chain Overview
Ondo Chain is a Layer-1 blockchain developed by Ondo Finance to facilitate the integration of institutional-grade real-world assets (RWAs) into decentralized finance (DeFi).
With Ondo Chain, Ondo Finance proposes a sort of "hybrid approach" that combines the openness of public blockchains and the security features of permissioned chains.
Ondo Finance motivations
The motivations that led Ondo Finance to launch Ondo Chain are related to the current barriers that prevent the creation and utilization of tokenized regulated securities at scale.
One of these barriers is the incompatibility of DeFi with public securities. DeFi was not built with that type of assets in mind and therefore, the existing model presents many obstacles, particularly related to corporate actions, such as forward and reverse stock splits.
Another problem is the fact that on-chain capital and users are increasingly multichain, necessitating the need to issue RWAs across chains. That creates an obstacle as it creates the need for bridging, which adds complexity and risk to asset management.
On top of that, there is the classic problem of transaction fees. On most Proof-of-stake chains, a single token is used for validator staking and for paying gas fees and, as the price of this token tends to be very volatile, the cost of transactions can sometimes be quite high.
And finally, there is the regulation problem. For RWA tokenization to become "a thing," traditional asset managers must be onboarded. The problem is that many regulated institutions simply cannot transact on public blockchains and need to address their legal and regulatory concerns.
Ondo Chain features
To overcome those barriers, Ondo Finance developed a core set of features that aim to enable the tokenization of real-world assets in a way that's safe and compliant with existing regulations in order to become a viable alternative to traditional finance users.
For example, Ondo Chain validators will be able to stake any eligible assets, which will be decided by on-chain governance. These validators will be permissioned and continuously monitored to ensure compliance with institutional requirements. By combining a permissioned validator set with RWA staking, institutional capital can be used to secure not only the network but also other critical components (e.g. bridges, oracles, etc.).
On top of that, to ensure a seamless connection with TradFi environments, select financial institutions will run a subset of Ondo Chain validators. These will be chosen by Ondo Chain's decentralized governance process, which is formed by its stakeholders. This two-tier governance structure ensures that the platform aligns with the community's interests and remains adaptable to the evolving blockchain landscape.
These main features and a few others will enable Ondo Chain to offer varied use case such as prime brokerage, staking, collateral, wealth management, cross-chain token issuance and stablecoin distribution.
Final thoughts
Ondo Chain is Ondo Finance's bet to fully integrate RWA into the blockchain economy. There are many barriers that prevent that but Ondo Finance believes the features it has implemented on its L1 solution and the hybrid approach between public and permissioned chains will bring the "best of both worlds" to all stakeholders and projects that build on Ondo Chain.
They have a good proposal in theory, but the question is, can they attract the interest of investors and traditional asset managers? And, more importantly, will they be able to compete with other RWA solutions that have been in the market for longer, such as Chainlink?