ONDO

1. What is ONDO?

Ondo finance is a multi-product ecosystem that designs institutional-grade, blockchain-enabled platforms, assets, and infrastructure to bring financial markets onchain. Its aim is to solve traditional finance limitations such as high fees and limited access for many people worldwide.

Ondo has an asset management arm that creates and manages tokenized financial products as well as a technology arm that develops decentralized finance protocols and blockchain solutions.

Ondo comprises many products. The most important one is Ondo Chain[1], which is a Layer 1 blockchain that will enable real-world assets (RWA) to be tokenized and used at scale in a regulated environment, creating institutional-grade financial markets onchain.

Other Ondo products primarily consist of tokenized cash equivalents that deliver yield from U.S. Treasuries, money market funds, and similar instruments, offering on-chain investors an alternative to stablecoins.

ONDO token is the native cryptocurrency of the Ondo ecosystem, used primarily as a governance and transaction payment token. ONDO market cap stands at $2.9 billion as of date, ranked no. 46 on Coingecko.

2. How does Ondo work?

Ondo operates a Proof-of-Stake (PoS) consensus mechanism. Validators on the Ondo network are typically institutional asset managers and broker-dealers. They stake RWAs and other high quality liquid assets to secure the network, bridges, and oracles, reducing volatility risk and costs while enabling investors to earn additional yield on their RWAs. In return for this, validators earn rewards. Investors wishing to invest on Ondo select their preferred product, buy ONDO or USDY and make deposits or buy RWAs. They pay management and service fees to the Ondo network.

Ondo additionally employs enshrined Oracles and Proof of Reserves. Through consensus, validators automatically verify key off-chain data such as asset prices (via price feeds) and proof of reserves (via custodians or broker dealers).

3. Ondo Products

Ondo products can be classified into assets, platforms and protocols and infrastructure, each broken down as follows:

• Assets:
  1. USDY: a tokenized note secured by short-term US Treasuries and bank demand deposits
  2. OUSG (Ondo Short-Term US Government Treasuries): a token that provides liquid exposure primarily to short-term US Treasuries, as well as government-sponsored enterprise (GSE) securities.
• Platforms and Protocols:

3. Ondo Global markets: a platform designed to bring traditional public securities onchain, with tokens that are freely transferable and usable in DeFi.
4. Flux Finance: a protocol developed as an onchain Treasury repo marketplace, allowing users to borrow and lend stablecoins backed by collateral such as OUSG.

• Infrastructure:

5. Ondo Chain: Layer-1 blockchain purpose-built to facilitate the creation of institutional-grade financial markets onchain. The chain provides DeFi developers with the ability of integration with traditional financial systems.
6. LayerZero’s bridge technology: used to transfer tokens.
7. Ondo Token converter: allows to convert between two forms of yield on Ondo tokens: Distributing Tokens and Accumulating Tokens. Yield can be paid out either in a distributing form (the yield accrues daily via additional tokens distributed to your wallet) or in an accumulating form (the yield accrues daily via an increasing redemption value per token).

4. Use Cases of ONDO Token

Key use cases of the ONDO token include:

• Governance: ONDO enables holders to participate in the governance of the Ondo DAO and Flux Finance, influencing protocol upgrades and the platform’s direction.
• Transaction Fees: The token may be used to pay transaction fees within the platform.
• Staking: Users can stake ONDO tokens to earn rewards, contributing to the network’s security and stability.
• Incentives: ONDO tokens may be distributed as incentives to users who participate in liquidity provision, yield farming, or other activities that enhance the platform’s liquidity.
• Collateral in DeFi Products: ONDO tokens can serve as collateral for borrowing and lending within Ondo’s decentralized lending protocol, Flux Finance, enabling users to leverage their holdings.

5. Shariah Screening

In this section, we analyze the Ondo ecosystem from a Shariah perspective and subsequently attempt to draw Shariah’s opinion about the exchange and use of the token. This screening is primarily based on Ondo’s website and documentation.

Ondo’s Shariah compliance will depend on assessing the following elements:

• The project
• The legitimacy
• Processes and Relationships between Ondo partners
• Use cases of Ondo

• The project

Ondo Chain aims to solve traditional finance limitations through tokenization and bringing financial markets onchain. While the concept of tokenization per se does not conflict with Shariah, the focus of the chain on decentralizing traditional finance suggests that the size of non-compliant conventional financial instruments is or will be significant, consisting essentially of products such as interest-based lending, bonds, derivatives and trade of debt, raising Shariah concerns.

In addition, the Asset products and the Platforms products of Ondo rely on interest-based products.

In a nutshell, the purpose of the Ondo ecosystem does not align with Shariah.

• The legitimacy

The Ondo website and documentation provide information about the network, the governance system and the underlying processes and mechanisms.

Certik Skynet gives Ondo, as of date, a moderate security score of 87.5, with an AA rating. The main reason is the relatively low score assigned to the Code Security pillar (76.3).

In general, we consider the network to be at acceptable levels of legitimacy.

• Underlying relationships
  • Relationship between Ondo and Users

Investors can earn yields through Ondo products. Ondo gets management and service fees which are deducted from the yields earned. This relationship is an Ijara إجارة contract between the platform and the user, where a service is provided in exchange for a pre-determined fee. Though Ijara is permissible in principle, it is here haram because it consists of managing investment in Riba-based financial products. Therefore, doing this job by the network and the payment of fees by the investor is prohibited.

• • Relationship between Ondo and Validators

Ondo Finance employs a Proof of Stake (PoS) consensus mechanism to secure its blockchain infrastructure. In this system, validators, primarily institutional asset managers and broker-dealers, are selected based on the amount of ONDO tokens they hold and are willing to stake. The relationship between Ondo and its validators aligns with the Shariah contract of Ijara. However, this Ijara is considered void from a Shariah perspective, because transactions are validated for prohibited use cases, primarily interest-based lending.

In Ondo, there is no delegated staking.

• Ondo Token Use cases

As outlined above, the use cases of the Ondo network and the uses of the ONDO token are all intended to support Shariah non-compliant financial products, particularly interest-based lending products, and earn Shariah non-compliant yields. Therefore, we deem that the use and trading of the Ondo token is Shariah non-compliant. A user could conceivably use the Ondo Chain to build a Shariah-compliant use case, and in such case, they could be allowed to buy and use the ONDO token for that sole purpose.

Conclusion of Shariah Opinion

This report has analyzed the Ondo token based on the Ondo ecosystem’s purpose, legitimacy, structure and use cases. The Ondo network is a multi-product ecosystem that designs blockchain-enabled platforms, assets, and infrastructure to bring traditional financial markets onchain. Its products consist of assets and platforms that offer or support conventional financial instruments, especially interest-based lending, such as tokenized U.S treasury notes. The ONDO token is the native cryptocurrency of the network, serving for governance, staking, transaction fees and collateral in DeFi products.

Due to the prohibition of the network’s purpose and use cases and the role of the ONDO token in empowering these use cases, the report does not approve exchanging the ONDO token. A conceivable exception would be a developer that may use the Ondo Chain to build a Shariah-compliant use case. In such a rare scenario, the developer could be allowed to buy and use the ONDO token for that sole purpose.

[1] As per the latest update by Ondo on April 7, 2025, Ondo Chain hasn’t launched yet.