Rapid innovation in the digital asset tokenization space has led to the emergence of “tokenized funds” at the intersection of traditional finance and the blockchain. These funds, issued in the form of cryptocurrency tokens, make it possible for assets such as stocks, commodities, bonds and real estate to be traded freely on the blockchain, and aim to make the investment landscape simpler and more transparent.
Tokenized funds usually represent shares or units in traditional investment funds, such as a private equity, venture capital or mutual fund. Some of the main advantages pitched by the purveyors of these digitized investments are reduced trading fees, a lower financial barrier to entry, the removal of geographical barriers and greater liquidity, allowing investors to buy in or cash out on secondary markets without restrictions. While the idea has some merit, the earliest tokenized funds appear to be rather experimental, perhaps more of an effort to encourage traditional financial institutions and investors to explore the capabilities of blockchain technology. But they still fall short of the true potential of tokenization in many ways. For instance, most tokenized funds are really just private fund wrappers that sell securities, repackaged as ERC-20 tokens, and they continue to focus on large clients, offering only limited access to retail investors.
The failings of these early tokenized funds has led to the rise of alternative tokenization initiatives, and one of the most promising is the idea of stablecoin-yield-as-a-service. OpenTrade is pioneering this new concept, creating the operational framework for investors of all sizes to generate stable yield on digital assets across a range of lending markets.
How Do They Differ?
Tokenized funds are designed to lower the access requirements to traditional funds, primarily those with high minimum investment requirements and those with geographical restrictions. In addition, they can also solve the liquidity problem in funds focused on private equity and real estate, paving the way for fractional ownership that ostensibly lowers the financial barrier to entry.
One of the most prominent examples of a tokenized fund is BlackRock’s BUIDL fund, which launched in March 2024 and quickly captured almost a third of the entire $1.3 billion tokenized treasury market in just six weeks. As of August 2024, BUIDL had more than $510.3 million assets under management, with a portfolio focused on cash, U.S. Treasury bills and repurchase agreements.
Other examples of tokenized funds include Ondo OUSG, which tracks short-dated U.S. Treasury Bonds, and OpenEden, a fund that tracks tokenised U.S. Treasury bills.
Despite the proposed benefits that blockchain brings to these tokenized funds, their experimental nature creates a number of major limitations. They primarily act as an asset manager that issues tokens representing the funds, but they do not offer any other technology to help investors leverage their investments in them. In addition, the issuers play no role in the value chain beyond token issuance and redemption.
Another major dealbreaker for tokenized funds is that they continue to operate with very high minimum investments. Individual tokens that represent a share of the fund still cost in excess of $100,000 in many tokenized funds, which prohibits the participation of retail investors.
Instead, their primary customers are the same type of audience as traditional funds – namely, wealthy financial institutions that are simply looking to experiment with blockchain technology, and perhaps a handful of crypto whales looking for ways to invest their idle crypto holdings.
In addition, geographic barriers still persist, with most tokenized funds restricting access to U.S.-based investors.
Stablecoin Yield-as-a-Service is considerably more representative of the original ideals of tokenization, welcoming all kinds of investors with its low financial requirements.
The core idea is that investors can deposit USDC stablecoins into “token vaults” representing different pools. For each token they deposit, they’ll receive a newly minted vault token (vToken) which represents their share of the vault, as well as any profits or losses generated by that vault.
OpenTrade utilizes the funds in its vaults to earn interest in various ways, primarily through a range of blockchain-based structured credit and lending products. Borrowers can choose from various single-sided and multi-sided credit markets, with short-term, fixed-term and flexible-term loans, either collateralized or uncollateralized.
By supporting a diversity of yield-generating activities, OpenTrade’s stablecoin yield-as-a-service can provide both stable returns, and the potential of much higher yields for investors with greater risk tolerance.
Who Can Invest?
The high minimum financial requirements of tokenized funds mean they remain out of bounds to all but the richest institutions and high net worth individuals. As such, they remain an exclusive product, similar to the traditional funds they represent.
It’s a bit of a head scratcher because tokenization is primarily designed to increase accessibility, yet their issuers throw up numerous obstacles that not only restrict access, but also limit investors’ returns.
OpenTrade’s Stablecoin Yield-as-a-Service is offered to financial institutions, including both crypto and non-crypto native firms, who in turn package them as products for retail investors. Its main customers are neobanks and crypto exchanges, who provide a range of applications and services for stablecoin holders to earn yield on their holdings, with simple one-click access and support for various risk profiles. As such, stablecoin yield-as-a-service is perhaps the first real example of a tokenized investment opportunity that’s available to the masses, wrapped in a strong legal framework that satisfies the compliance requirements of financial institutions.
Ondo OUSG vs OpenTrade
Ondo OUSG is enables institutional investors to experiment with tokenized exposure to short-term U.S. Treasury bonds and Money Market Funds. It’s available in two options – as an accumulating token called OUSG or a rebasing token called rOUSG, which represent both membership and equity interest in Ondo’s portfolio.
The main benefits of Ondo OUSG are said to be instant, 24/7 minting and redemption, with low minimums for both investments and withdrawals and reduced fees. However, it continues to suffer from some severe limitations, including a higher financial threshold, limits on subscriptions and a lack of composibility – all problems that are successfully addressed by OpenTrade.
While Ondo OUSG’ does allow for one instant subscription and redemption per day, further deposits and withdrawals must be submitted via email and are only settled after one-to-two business days. OpenTrade, on the other hand, has very few limitations, with support for unlimited instant deposits and same-day withdrawals.
Ondo OUSG prides itself on being one of the most accessible tokenized funds, with relatively low minimums of just $5,000 for instant subscriptions and redemptions, but much higher limits of $100,000 and $50,000 for non-instant deposits and withdrawals. It also suffers from a lack of compatibility, and is only compatible with a limited number of permissioned products that adhere to strict regulatory requirements – namely, Ondo’s proprietary offerings.
Other problems with Ondo OUSG include the expectation that OUSG will eventually be classified as a security token due to its legal rights, no EURC yield opportunities and lack of support for custodial wallets like Fireblocks, which can dissuade some institutional investors.
OpenTrade is held back by none of the above, with no minimums on subscriptions or redemptions and a composable design with clear regulatory positioning, support for EURC yield and full integration with Fireblocks and other custodial wallet services.
OpenEden vs OpenTrade
OpenEden provides access to digital tokens that are backed on a 1:1 basis with U.S. Treasury bills structured via a fund. It simplifies investor’s exposure via its T-Bill Vault, which is an ERC-20 compliant digital asset that’s pegged 1:1 to the U.S. dollar, with variable yield based on the fluctuation of short-term Treasury bonds.
Although simplified, OpenEden does little to address accessibility to U.S. Treasury bonds with its excessively high initial subscription requirements, while investors are also encumbered by a slow redemption process and higher transaction fees.
OpenEden’s lack of accessibility is a serious handicap, with an initial subscription minimum value of $100,000 putting it out of bounds to the vast majority of retail investors, though it does support much lower minimum secondary deposits of just $1,000 thereafter.
OpenEden’s redemption process is also slow, with requests locked in a FIFO queue and taking a minimum of one business day, while its regulatory perimeter limits composibility. Investors must also accept the risk that loss of access to their tokens may result in lock of access to their principal deposit. That’s not the case with OpenTrade, whose legal obligations are upheld by a Master Loan Agreement, ensuring that both the principal and any interest accrued is protected.
By far the biggest stumbling block with OpenEden is its high transaction costs. It charges a flat transaction fee of 5 bps on all subscriptions and redemptions, which can have a substantial impact on client’s yield. OpenEden advertises a yield of 4.25%, but investors will rarely realize such gains due to its commercial model. Indeed, investors won’t start earning any interest unless they maintain their position in OpenEden for at least 9 days, and it takes a significant amount of time before they start earning anything close to the advertised yield.
Incredibly, the impact of OpenEden’s transaction fee is such that investors are required to hold their tokens for a staggering 10 years in order to attain the 4.25% APY advertised. That’s in stark contrast to OpenTrade, which allows investors to start accumulating a 4.10% yield immediately after they make their first deposit.
Final Thoughts
Tokenization is a transformational concept and the growing popularity of tokenized funds and stablecoin yield products underscore its incredible potential to simplify investing and accelerate investors returns, while boosting access.
Yet for all of these promises, most tokenized funds continue to be exclusive opportunities offered by traditional financial powerhouses for their regular clients, with little regard for retail investors. The limitations placed on these offerings significantly erode the attractiveness of tokenized investments and are at odds with the ethos of blockchain in general.
Given their experimental nature, we can be optimistic that this will change and institutions will be more open to boosting the accessibility of their tokenized funds in future. In the meantime, retail investors can still explore the possibilities enabled by OpenTrade’s tokenized stablecoin yield-as-a-service products, which offer a compelling APY with significant flexibility based on their willingness to accept risk.
In any case, tokenization is a concept that will continue to evolve, and it’s encouraging to see the progress being made by types of investments. But for now, OpenTrade is setting the standard with MiCA-compliant stablecoin yield products, which are designed to meet the demand for secure and flexible returns for every kind of investor.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
