Research Summary
The report provides an in-depth analysis of the U.S. Dollar token (USDY), a financial instrument developed by Ondo Finance. USDY is a tokenised note anchored by U.S. Treasuries and bank deposits. The report covers the structure, yield, fee structure, collateral infrastructure, legal infrastructure, and smart contracts associated with USDY. It also discusses the potential risks and benefits of integrating USDY into DeFi applications.
Key Takeaways
Understanding USDY
- USDY Overview: USDY is a financial instrument developed by Ondo Finance. It is a tokenised note anchored by U.S. Treasuries and bank deposits. USDY is a rate-oraclised token, meaning its value increases over time. It operates within the framework of Ondo USDY LLC, a bankruptcy-remote, US-domiciled specialty purpose vehicle.
- USDY Yield: USDY tokenises cash and cash-equivalent deposits, which earn yield through U.S. Treasury bills and bank deposits. Ondo Finance has devised two ways through which holders of the tokenised yield-bearing asset can earn interest: Rate-oraclised token design (USDY) and Rebasing token design (rUSDY).
- USDY Collateral Infrastructure: USDY’s target allocation comprises 65% in bank deposits and 35% in short-term U.S. Treasuries. The collateral earning yield is over-collateralised by 3%. U.S. Treasuries are held in cash-custody accounts at Morgan Stanley and StoneX, while bank deposits are custodied in Demand Deposit Accounts at Morgan Stanley and First Citizens Bank.
- USDY Legal Infrastructure: USDY is available courtesy of a “Regulation S” exemption granted by the U.S. Securities and Exchange Commission (SEC). This exemption allows Ondo to provide the USDY product exclusively to individuals or entities not based in the United States.
- USDY Smart Contracts: The USDY smart contract relies on several components to enable transfers for a user, primarily the AllowList, the BlockList, and the SanctionsList. The process of minting and redemption involves the RWAHub/USDYManager contract.
Actionable Insights
- Investigate the Potential of USDY: USDY presents a unique opportunity for investors looking for a yield-bearing stablecoin backed by low-risk, cash-equivalent investments. However, potential investors should be aware of the rigorous user-address checks on each USDY token transfer operation, which could increase per-transaction costs.
- Consider the Implications of USDY’s Legal Infrastructure: USDY operates under a “Regulation S” exemption granted by the SEC, which allows it to be offered exclusively to non-U.S. individuals or entities. This could have implications for potential investors based in the U.S.
- Understand the Role of Smart Contracts: The USDY smart contract relies on several components to enable transfers for a user. Understanding these components and how they interact is crucial for potential investors and integrators.
