Tokenized Funds vs Stablecoin Yield-as-a-Service: Which Is Best?

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As a seasoned investor with decades of experience in traditional financial markets, I have to admit that the advent of tokenized funds and stablecoin yield products has truly piqued my interest. Having witnessed countless market cycles and economic upheavals, I’ve learned to appreciate simplicity, flexibility, and accessibility when it comes to investments.

The fast advancements in digital asset tokenization have given rise to “tokenized funds,” a blend of conventional finance and blockchain technology. These funds, represented by cryptocurrency tokens, enable assets like stocks, commodities, bonds, and real estate to be traded effortlessly on the blockchain. Their goal is to streamline and make the investment sphere more transparent.

Tokenized investments, which often represent shares or units in conventional financial vehicles like private equity, venture capital, or mutual funds, are digitally traded alternatives touted for their benefits such as lower trading fees, easier access, no geographical limitations, and increased liquidity. However, it’s important to note that these early tokenized investments seem more exploratory, serving as a means to introduce traditional financial institutions and investors to the potential of blockchain technology. Yet, they don’t fully tap into the true potential of tokenization in several aspects. For example, most tokenized funds are essentially private fund wrappers selling securities, rebranded as ERC-20 tokens, and they continue to cater primarily to large clients, providing limited opportunities for retail investors.

Due to the flaws in initial tokenized funds, innovative tokenization approaches have emerged, and one of the most intriguing is the concept of “stablecoin-yield-as-a-service.” OpenTrade is spearheading this novel idea, building the infrastructure for investors – regardless of their size – to earn consistent returns on digital assets by lending them across various markets.

How Do They Differ?

Tokenized investments offer a simpler approach to traditional funds, particularly those with substantial minimum investment amounts and geographical limitations. Moreover, they address the issue of illiquidity in funds concentrating on private equity and real estate, thereby promoting fractional ownership which effectively decreases the monetary threshold for participation.

One notable instance of a fund utilizing tokens is BlackRock’s BUIDL fund, introduced in March 2024. Within six weeks of its launch, it accounted for nearly a third of the entire $1.3 billion tokenized treasury market. By August 2024, BUIDL managed over $510.3 million in assets, with its portfolio mainly consisting of cash, U.S. Treasury bills, and repurchase agreements.

Additional instances of tokenized investment funds are Ondo OUSG, a tracker for short-term U.S. Treasury Bonds, and OpenEden, a fund designed to follow the price fluctuations of tokenized U.S. Treasury bills.

Although blockchain-based tokenized funds may provide numerous advantages, their experimental status presents significant drawbacks. Primarily functioning as asset managers that distribute tokens symbolizing the funds, they lack additional technology to aid investors in maximizing their investments. Furthermore, the entities behind these funds only participate in the process by issuing and redeeming tokens, with no involvement in the value chain beyond this.

A significant issue with tokenized funds is their persistently high minimum investment requirements. In numerous tokenized funds, individual tokens representing a portion of the fund are priced above $100,000 each, limiting the involvement of average or retail investors.

Rather than catering to a different clientele, they primarily serve an audience similar to conventional investment funds. This group mainly consists of financially well-off institutions seeking opportunities to explore blockchain technology, as well as a few prominent crypto investors who want to utilize their excess cryptocurrency for further investments.

Furthermore, geographical obstacles remain, as many tokenized investment funds continue to limit access primarily for U.S. investors.

As a researcher exploring the realm of digital currencies, I find Stablecoin Yield-as-a-Service to be a remarkable embodiment of the founding principles of tokenization. Its accessibility and low financial thresholds make it an inviting prospect for a diverse array of investors.

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 employs the money kept in its safekeeping to generate returns using multiple strategies, primarily through different types of blockchain-backed credit and lending solutions. These borrowers have access to various loan markets, both single-sided and multi-sided, offering short-term, fixed-term, and flexible-term loans. The loans can be secured or unsecured by collateral.

As an analyst, I’d articulate it this way: “Through fostering various income-producing endeavors, OpenTrade’s Yield-as-a-Service model offers a steady income stream, while also presenting the opportunity for enhanced returns to those who are willing to take on higher risks.

Who Can Invest?

Tokenized funds, due to their substantial entry-level financial thresholds, are primarily accessible only to affluent organizations and wealthy individuals. Consequently, they continue to embody an exclusive nature, much like the conventional funds they mirror.

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 Yield-from-Stablecoins-as-a-Service caters to various financial entities, encompassing both crypto-centric and traditional firms. These entities transform the service into investment products for individual consumers. Main clients include neobanks and digital currency exchanges, offering diverse applications and services that enable stablecoin owners to generate returns on their investments with straightforward one-click operations and accommodating various risk preferences. Thus, Yield-from-Stablecoins-as-a-Service might be the first tangible instance of a tokenized investment opportunity accessible to the general public, encased within a robust legal structure that fulfills the regulatory demands of financial institutions.

Ondo OUSG vs OpenTrade

Ondo’s platform offers institutional investors the opportunity to test out investments tied to short-term U.S. Treasury bonds and Money Market Funds using tokenized assets. This service is accessible through two choices: an accumulating token named OUSG, or a rebalancing token called rOUSG. Both of these tokens serve as a means of membership and ownership in Ondo’s investment portfolio.

The key advantages often cited for Ondo OUSG include immediate minting and redemption available around the clock, plus low minimums for both investments and withdrawals, along with reduced fees. Yet, it still grapples with significant hurdles such as a more substantial financial requirement, subscription restrictions, and an absence of compatibility – all issues that OpenTrade effectively resolves.

As a crypto investor, I’ve found that Ondo OUSG offers an immediate subscription and redemption once a day, but any additional deposits or withdrawals need to be requested via email, and they are processed within one to two business days. In contrast, OpenTrade stands out for its flexibility with support for unlimited instant deposits and same-day withdrawal processing, making it more convenient for my investment needs.

Ondo’s User-Friendly Securitization Group (OUSG) takes pride in offering one of the most accessible tokenized investment funds. To join or withdraw quickly, you only need a minimum of $5,000. However, for larger deposits and withdrawals that aren’t instant, the minimum amounts are significantly higher at $100,000 and $50,000 respectively. Unfortunately, Ondo’s platform is not universally compatible and works only with a restricted set of approved products that meet stringent regulatory standards – specifically, those developed in-house by Ondo themselves.

One issue facing Ondo OUSG is the potential classification as a security token due to its legal rights, coupled with the absence of Euro Currency Coin (EURC) yield prospects and insufficient compatibility with custodial wallets like Fireblocks. This combination might deter certain institutional investors.

OpenTrade thrives without any limitations mentioned, offering flexible subscription plans without minimum requirements for both subscriptions and redemptions. Its modular design is accompanied by a transparent regulatory stance, supporting EURC yields, and seamless integration with Fireblocks, as well as other custodial wallet services.

OpenEden vs OpenTrade

OpenEden offers investors direct access to tokens that have a one-to-one correlation with U.S. Treasury bills managed through a fund. It makes investing easier by offering the T-Bill Vault, a digital asset compliant with ERC-20 standards and pegged at parity with the U.S. dollar. The yield is flexible and adjusts according to changes in short-term Treasury bond rates.

OpenEden’s streamlined approach doesn’t effectively tackle the issue of accessibility for U.S. Treasury bonds due to its steep initial investment thresholds. Additionally, investors face a lengthy redemption procedure and relatively high transaction costs.

As a crypto investor with aspirations beyond my current means, I find OpenEden’s steep initial subscription requirement of $100,000 quite daunting. This high barrier to entry excludes the majority of us retail investors from joining. However, it’s worth noting that they do allow secondary deposits as low as $1,000 once you’re in, which offers a glimmer of hope for those of us aiming to grow our crypto portfolios.

OpenEden’s redemption procedure moves at a snail’s pace, as requests are lined up in a First-In, First-Out (FIFO) queue and may take at least one business day to process. Additionally, its regulatory boundaries restrict compatibility. Investors should be aware that losing access to their tokens could potentially lock them out of their initial deposit as well. On the other hand, OpenTrade operates differently, with legal commitments backed by a Master Loan Agreement. This means that both the original investment and any accumulated interest are safeguarded.

As a researcher delving into OpenEden, I’ve found that one major hurdle is the high transaction costs associated with this platform. It imposes a flat transaction fee of 5 basis points (0.05%) on every subscription and redemption, which can significantly erode client’s potential returns. Although OpenEden promises a yield of 4.25%, investors seldom achieve such returns due to its business model.

 
 

Remarkably, the transaction fee of OpenEden means that investors must keep their tokens for an astounding 10 years to earn the 4.25% Annual Percentage Yield (APY) stated. This is quite different from OpenTrade, where investors can start earning a 4.10% return straight away once they’ve made their initial 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. 

Despite numerous pledged benefits, it’s often found that tokenized funds remain exclusive privileges primarily extended by established financial giants to their regular patrons, largely ignoring retail investors. The constraints imposed on these deals significantly diminish the allure of tokenized investments and contradict the fundamental principles of blockchain technology.

With an experimental approach, there’s reason to be hopeful that these institutions will eventually increase the accessibility of their tokenized funds. For now, individual investors can delve into the opportunities presented by OpenTrade’s tokenized stablecoin services, which provide a competitive Annual Percentage Yield (APY) and flexible terms depending on one’s risk tolerance.

Regardless, the idea of tokenization is destined to change further, and it’s heartening to observe the advancements spurred by various investments. However, at present, OpenTrade stands out as a leader with its MiCA-compliant stablecoin yield products, tailored to cater to diverse investors seeking safe and adaptable returns.

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2024-12-16 15:56