Ondo Finance Inc., a decentralized platform set up by a pair of former Goldman Sachs Group Inc. associates, is launching a new product that uses money-market funds investing in US government securities to create a yield-generating stablecoin alternative.
(Bloomberg) — Ondo Finance Inc., a decentralized platform set up by a pair of former Goldman Sachs Group Inc. associates, is launching a new product that uses money-market funds investing in US government securities to create a yield-generating stablecoin alternative.
Investors in the tokenized money-market fund will receive a digital coin called OMMF, the company said in a blog post Thursday. The details of the fund structure weren’t disclosed, but Ondo said that it will invest only in low-risk money market funds, including those holding US government securities.
“First generation stablecoins…were created when interest rates were near zero, so designing them to be able to pass on yield was not a focus,” Justin Schmidt, president and chief operating officer at Ondo, said in a direct message. “By tokenizing money-market funds we are able to deliver the price stability and on-chain utility of stablecoins while providing superior investor protections and passing on yield to holders.”
Read more: Goldman’s Former Head of Digital Joins DeFi Startup Ondo
Stablecoins, tokens that are designed to hold a steady value in contrast to the price volatility seen in Bitcoin and other crypto assets, have been at the center of some of the recent market shakeups in crypto. USD Coin, one of the most popular stablecoins, saw its value drop below its intended one dollar peg in early March after its issuer Circle Internet Financial Ltd. announced its exposure to failed Silicon Valley Bank. And in February, New York’s Department of Financial Services directed Paxos Trust Co. to stop issuing new tokens of BUSD, a stablecoin branded under crypto exchange Binance.
Read more: Circle Stablecoin Shakiness Reverberates in Crypto World of DeFi
Those issues have prompted some in the market to search for alternatives to the existing setup, under which stablecoins like USDC holding cash and other highly liquid assets to match the value of the stablecoin in circulation.
Ondo said that it hopes OMMF can be used for settlement by over-the-counter desks, exchanges, traders and institutional counterparties in dollar-denominated trades as an alternative to bank settlement networks or other stablecoins.
Outside trading, stablecoins are also widely used in crypto lending as a preferred collateral asset, and Ondo is targeting OMMF for use as an alternative here as well. The total value of the stablecoin market is more than $130 billion, according to data from tracker CoinGecko.
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