Key Takeaways:
- Ondo Finance has now introduced the ease of converting legacy shares into tokenized stocks and ETFs for approved institutions without cash invested.
- The new in-kind conversion route uses Ondo Stocks and Alpaca’s Instant Tokenization Network on Ethereum and BNB Chain.
- Ondo believes that creating tokens out of existing share inventory could facilitate deeper liquidity in the secondary market and limit funding friction.
Ondo Finance has introduced an institutional-grade solution to bridge the gap between conventional securities and blockchain-based ones. In addition to cash, eligible organizations can now also pay the underlying shares for the tokenization of stocks and ETFs.
Direct Conversion Between Shares and Tokens
This new system links Ondo Stocks to Alpaca’s Instant Tokenization Network (ITN), which establishes a seamless link between traditional shares and their corresponding tokens.
An approved institution proposes eligible share transactions from its Alpaca account to Ondo’s Alpaca account that happens through an internally approved book transfer. Ondo then creates the respective tokenized stocks or ETFs on a supported blockchain.
It is also possible to have the process flow in reverse. An institution will return their Ondo Stocks tokens and the shares will be returned to their Alpaca account. This will enable a two-way conversion process, instead of a one-way issuance of tokens.
Read More: Franklin Templeton Teams with Ondo to Launch 24/7 Tokenized ETFs
Access Remains Limited to Approved Institutions
This feature is not accessible to the public. Every institution is required to be approved by Alpaca and to undergo the necessary onboarding procedure with Alpaca and Ondo. Currently, the following chains are supporting conversions: Ethereum and BNB Chain. The use of the service is available only after request for activation by the two platforms.
Existing Share Inventory Becomes Onchain Liquidity
Ondo already has a cash funded minting process of tokenized securities. The proposed mechanism alters the capital size of institutions which already have the underlying assets.
Earlier, an institution that had shares required extra funds to establish the corresponding share token position. The tokens themselves can be issued using those in-kind converted shares.
That might decrease the amount of money which is needed whilst also getting rid of a part of the time distance in between typical securities and the ones that are substituted by blockchain.
This change has a special importance for market makers and other institutional liquidity providers. For those with existing shares, it may be possible to convert shares to tokens quicker in order to meet demand on secondary trading venues.
The increased flexibility is expected to benefit Ondo by bringing more liquidity and depth to its tokenized assets.
RWA.xyz data quoted in the coverage indicated that Ondo houses distributed $3.63 billion in assets across 441 products on the platform, making it a big player in the tokenization market. The new conversion route provides institutions with a new way to bring the traditional asset value to the blockchain network and still own the security itself to the network.
Read More: SEC Clears Path for Tokenized Stocks With 5-Year Onchain Trading Exemption
