Ondo Finance: Ondo I LP (OUSG) STEP Application

Applicant information
Name: Ondo I LP
Address (Headquarters): 500 W Putnam Ave Ste 400
City, State, Postal Code: Greenwich, CT, 06830-6096
Country: US
Website: OUSG | Ondo Finance

Primary Contact
Name: Katie Wheeler
Title: VP of Partnerships
Country: US
Email: Katie.Wheeler@Ondo.Finance
Telegram: @Katie_Wheeler

Key Information
Expected Yield: 4.96% APY as at 04/30/24

Expected Maturity: OUSG does not have a maturity. It is a portfolio of assets that ultimately themselves may have a maturity or weighted average maturity, but these assets are rolled into new investments as they mature. The weighted average maturity typically measures 3-6 months.

Underlying asset: The significant majority of this portfolio is currently in the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with the remainder in BlackRock’s FedFund (TFDXX), bank deposits, and USDC for liquidity purposes.

Minimum/Maximum transaction size:

  • Investments: $10,000
  • Redemptions: $10,000

Current AUM for product: $141.43M as at 04/30/24
Current AUM for issuer: OUSG is the only current product of the issuer.

Volume of transactions LTM:
Value of mints in last 12 months since 05/01: $260,279,852
Value of redemptions in last 12 months since 05/01: $225,971,655

Source of first-loss capital: N/A

Basics and background

  1. How will this investment improve Arbitrum’s RWA ecosystem?
    Ondo Finance (the parent company of the GP of Ondo I LP) is the market leader in tokenization, building a number of industry first products. We believe that building a relationship between Ondo Finance and Arbitrum will form the basis of deeper future initiatives. OUSG is a best-in-class product that provides liquid exposure to short-term US Treasuries with 24/7 stablecoin subscriptions and redemptions, however, Ondo’s mission extends beyond tokenizing yield bearing cash equivalents.

  2. Identify key management personnel and individual experience. Also include third parties utilized for managing assets and their qualifications.

  • Nathan Allman | Founder and Chief Executive Officer
    Nathan previously worked at Goldman Sachs on the Digital Assets team. He also has a background in private credit investing at Prospect Capital Management. Nathan has an A.B. from Brown University. https://www.linkedin.com/in/nathanlallman/
  • Justin Schmidt | President and Chief Operating Officer
    Justin previously ran the Digital Assets trading desk at Goldman Sachs and helped launch the broader Digital Assets team. Justin also previously worked as a quantitative equities portfolio manager within the WorldQuant arm of Millennium Partners. Justin has a B.S. and M.Eng. from MIT. https://www.linkedin.com/in/justinschmidt/
  • Brendan Florez | Managing Director of Client Relations and Strategic Operations
    Prior to joining Ondo, Brendan held prior roles as Senior Relationship Manager at Bridgewater Associates, Founder and CEO of Base Capital, and President & COO of Polyera. He has a degree in Electrical Engineering from Princeton University.
  • Chris Tyrrell | Chief Risk and Compliance Officer
    Chris previously led the compliance team at Goldman Sachs Digital Assets, where he worked closely with Nathan Allman and Justin Schmidt, as well as at blockchain.com and EDX Markets, where he was most recently Chief Compliance Officer. He has a JD from UVa. Law.
  • Ian De Bode | Chief Strategy Officer
    Ian was the former head of digital assets at McKinsey where he advised C-suite executives from financial services firms and web3 startups. He has an MBA from Stanford University and a degree in electrical engineering & nanotechnology from the University of Leuven.
  1. Describe any previous work by the entity or its officers/key contributors similar to that requested. References are encouraged.
    Described above.

  2. Has your entity or its officers/key contributors been subject to an enforcement action, criminal action, or defaulted on legal or financial obligations? Please describe the circumstances if so.
    None of the officers/key contributors, nor our entity (together, the “Relevant Parties”) have been subject to any enforcement action or criminal action. Nor have any of the Relevant Parties defaulted on any legal or financial obligations in the last seven (7) years.

  3. Describe any conflicts of interest for your entity and key personnel.
    Details will be shared over email: rwa@dao.arbitrum.foundation

  4. Insurance coverages, guarantees, and backstops Name of insurer or guarantor Per incident coverage Aggregate coverage

  5. Historical tracking error in your proposed product, or similar to that being proposed Product 2024 YTD 2023 2022 2021

  6. Brief reason for above tracking error

  7. Please describe any experience your firm has in working with decentralized organizational structures
    Ondo Finance has onboarded a wide variety of crypto-native individuals and entities to our cash equivalent products. V1 of our product was geared specifically towards DAOs.

  8. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
    $141.43M TVL as at 04/30/24. OUSG is the only current product of the issuer.

  9. How many of these assets held are present on Arbitrum One, if any?
    None at the moment.

Plan design:

  1. Please describe your proposed product, including a description of the underlying assets and, if more than one asset, the proposed allocation among assets and general investment guidelines. Where appropriate, include targeted maturity mix and credit quality. Attach supplementary documents as appropriate.
    The significant majority of OUSG’s portfolio is currently in the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with the remainder in BlackRock’s FedFund (TFDXX), bank deposits, and USDC for liquidity purposes. The portfolio may, in the future, include other US Treasury funds and/or direct investments in US Treasuries.

Do investors have any shareholder, investor, creditor or similar rights?
The investors in OUSG have all of the rights of limited partners holding OUSG Class limited partnership interests, under the limited partnership agreement of Ondo I LP.

  1. Describe the legal and contractual structuring for your product including regulatory bodies overseeing your business and the product and identifying all legal jurisdictions interacting with your product. Attach supplementary documents as appropriate.
    OUSG is issued under the SEC’s Reg D exemption and is available to global Accredited Investors and Qualified Purchasers. As part of the onboarding process, investors must verify that they are an Accredited Investor, and self-attest to Qualified Purchaser status.
    Will send additional supplementary documents over email: rwa@dao.arbitrum.foundation

  2. Would Arbitrum’s assets be bankruptcy remote from your own entity and its officers/key contributors? If so, please explain the legal and contractual basis. On a confidential, non-reliance basis, provide any third party legal opinions to support the conclusions.
    OUSG is set up in a traditional LP/GP structure. OUSG is bankruptcy remote, meaning investors have the only claim on fund assets.

We will send a copy over email: rwa@dao.arbitrum.foundation

How are Arbitrum’s assets protected vis-a-vis the bankruptcy of the brokerage or applicable financial institution (e.g., bank deposit insurance, securities insurance, etc.)?
The collateral assets of the fund that backs the OUSG token are held in a bankruptcy-remote vehicle (Ondo I LP) with an equity buffer provided by the general partner as a first-loss piece. The primary collateral asset, BUIDL, is held directly by Ondo I LP onchain, without an intermediary bank or broker.

Does the Issuer issue more than one asset? If so, what is the priority relationship between different asset classes?
Ondo I LP currently has one share class – OUSG.

  1. Provide a detailed cash flow diagram that shows the flow of funds from ARB/Fiat conversion, investment in underlying asset, payment of expenses, sale of underlying asset, and repayment (Fiat/ARB conversion), including the counterparties and legal jurisdictions involved.

  1. Describe anticipated tax consequences (if any) in transacting on the underlying and/or receipt of yield.
    You should consult your own tax adviser, but we constructed OUSG to not be subject to US tax withholding or other US taxes for non-US-resident alien individuals and foreign corporations. Foreign tax implications are jurisdictionally dependent and may apply.

  2. Describe the process and expected timeline for liquidation of assets, if given instructions to do so by Arbitrum governance.
    OUSG provides 24/7 instant USDC subscriptions and redemptions subject to liquidity and daily limits (current global limit is $50M, and current individual limit is $25M). Beyond these limits, on the basis that requests are made before 3:00PM ET and received in good order, subscriptions and redemptions are typically completed by the following business day. Incomplete requests may lead to delays.

  3. What amount of first-loss equity will Sponsor provide to ensure over-collateralization, how is the first-loss equity denominated, and what is the source of capital?

  4. Describe the liquidity and stability of the proposed underlying assets, including anticipated settlement times from the sale of the underlying to the repayment of ARB.
    OUSG provides 24/7 instant USDC subscriptions and redemptions, subject to daily limits. Beyond these limits, on the basis that requests are made before 3:00PM ET and received in good order, subscriptions and redemptions are typically completed by the following business day. Incomplete requests may lead to delays.

  5. If relying on the blockchain for any of the transactional flows, please describe any blockchain derived risks and mitigations.

  • Subscription and redemption requests for OUSG are typically made via our web app at OUSG | Ondo Finance. Alternatively, investors may transfer USDC from their approved ethereum mainnet address to our Coinbase Prime address (ousg.eth) listed here: Smart Contract Addresses | Ondo Finance Docs in order to submit a subscription request. We can also process redemptions in a similar manner, by accepting OUSG transfers to a team-controlled wallet, where we can then burn OUSG on their behalf in order to process the redemption. We can also process both subscriptions and redemptions via bank wire, if desired, to mitigate risks associated with stablecoins.
  • Smart Contract Risk: All of our smart contracts are audited by reputable auditors prior to their release. Furthermore, since OUSG is a permissioned asset that can only be held by investors who complete our onboarding and KYC processes, we would not redeem such tokens to any party that had not previously been authorized. In the event of a hack or attack, we could simply burn the authorized tokens and re-mint them to the appropriate user.
  1. Does the product rely on any derivative product (swaps,OTC agreements?

  2. List all the third party counterparties linked to your assets including and not restricted to prime broker if any, custodian, reporting agent, banks for derivatives or loans and provide primary contact details for the third party counterparties

  • Ondo I GP: The general partner (GP) who instructs the service providers and manages the fund.
  • Ondo Capital Management: The investment manager (Ondo IM) who, alongside the GP, provides management services for the fund.
  • Ondo Finance Inc.: The technology services company that assists with the tokenization of the fund.
  • Ondo I LP: The Delaware limited partnership to which investors contribute capital and also holds the fund assets, e.g. the ETF shares.
  • Clear Street: The qualified custodian approved by regulators to hold assets on behalf of clients. Qualified custodians maintain client funds in separate accounts for each client under that client’s name.
  • Clear Street: The prime broker that holds off-chain assets and executes trade orders for the fund (e.g. buying & selling ETF shares).
  • Coinbase: The crypto custodian and brokerage that holds onchain assets (e.g. USDC).
  • NAV Consulting: The independent fund administrator responsible for accounting and reporting (e.g. calculating daily NAV prices).
  • Bank: SVB, a division of First-Citizens Bank.
  1. Can you explain how risk management (inv and operational) is being done? Can you provide a copy of your risk management policy?
    We are in the process of formalizing our risk management policy, and are happy to share the formal policy once it is completed. Our security committee meets regularly to consider and mitigate security risks. Our risk management program includes the following, without limitation:
  • Thorough KYC / KYB (to mitigate customer risk);
  • Strict internal access controls (to mitigate operational risk);
  • Conservative asset selection (to mitigate interest rate and market risk);
  • Conservative vendor and counterparty selection (to mitigate various third-party risks); and
  • Smart Contract audits (to mitigate technology risk).

Performance reporting

  1. What are your proposed performance benchmarks? If this is substantially different from the underlying assets, please explain why.
    Historic daily performance chart of OUSG is available at OUSG | Ondo Finance, starting February 2023. OUSG has historically closely reflected the underlying ETF yields.
  2. Describe the content, format, preparation process, and cadence of performance reports. This should include proof of reserves, if appropriate. Please include a sample report.
    Daily attestation reports produced by NAV Consulting, and uploaded by Ondo Finance Team members are available at Dropbox - PUBLIC - OUSG Daily Fund Updates - Simplify your life
    Investors also receive monthly investor statements directly from NAV Consulting via email.
  3. Who provides the performance reports in respect of the underlying assets?
    NAV Consulting
  4. Describe any formal audit process and timing of such audits.
    We are in the process of engaging an auditor. Our financial statements will be audited in accordance with AICPA standards, which includes an evaluation of our internal controls as part of the external auditor’s risk assessment procedures.


  1. Provide a copy of your standard contract, or one similar to what is being proposed here.
    Fund subscription documents can be found here: Dropbox - PUBLIC - Ondo I LP Investor Docs April 2024 - Simplify your life
    We will also provide a copy over email: rwa@dao.arbitrum.foundation

  2. Fee summary: Inclusive of the full scope of services requested. Product Fee schedule If asset based Fee calculation for our plan if asset based Annual fee if flat fee Any other fees (including redemption or minting fees)

  • Management Fee: 0.20%
  • Fund Expenses: Up to 0.15%
  1. Describe frequency of fee payment and its position vis-a-vis payment priority compared with other expenses (i.e., cash waterfall)
    Fees are reflected in the daily NAV provided by NAV consulting.

Smart Contract/Architecture

  1. How many audits have you had and name of auditors? Please provide a copy of reports.
  1. Is the project permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?
    Yes, the fund is permissioned to global Qualified Purchasers who have onboarded with Ondo Finance. Once an investor completes the onboarding process and is approved for OUSG, we approve their given wallet(s) to interact with OUSG.

  2. Is the product present on several chains? Are there any cross chain interactions?
    OUSG is currently available on Ethereum, Polygon, and Solana. There are no cross chain interactions between these tokens.

  3. Are the RWA tokens being used in any other protocols? Please describe the various components of the ecosystem
    OUSG can be used as collateral for borrowing at Flux Finance. The protocol is a fork of Compound V2 with additional functionality to support both permissionless (e.g. USDC) and permissioned (e.g. OUSG) tokens. Permissions are enforced on a per-asset basis. For example, a USDC lender won’t have any restrictions, but a USDC borrower using OUSG as collateral will need to satisfy OUSG’s permissions. More information is available here: https://docs.fluxfinance.com/

  4. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
    Investors trust Ondo Finance and their audited smart contracts to facilitate burns and mints of OUSG. All administrative permissions for the OUSG smart contract system are secured by industry leading Gnosis Safe multi-signature wallets.

  5. Is there any custom logic required for your RWA token? If so please give any details.
    No custom logic is required as OUSG is ERC20 compliant and inherits from the Open Zeppelin ERC20 Standard. Holders, senders, and receivers of OUSG must be present on an audited whitelist contract maintained by Ondo Finance.


  1. Please attach any further information or documents you feel would help the screening committee or ARB tokenholders make an informed decision. We will send additional supplementary documents over email: rwa@dao.arbitrum.foundation