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Ondo Finance (ONDO), a prominent player in the real-world asset (RWA) digitization sector, is currently navigating turbulent waters as enthusiasm around RWA projects wanes.

According to a recent analysis by Kaiko Research, which specializes in crypto market data, Ondo Finance is showing signs of declining momentum. This slowdown is attributed to a broader trend affecting similar RWA initiatives and could be exacerbated by anticipated shifts in US monetary policy.

The initial surge in interest for RWA projects, including Ondo Finance, was driven by the promise of bridging traditional finance with blockchain technology.

Ondo Finance, in particular, gained significant attention when it announced a partnership with BlackRock’s BUIDL initiative, which led to a sharp increase in the value of its governance token, ONDO.

At its peak, ONDO reached a record high of $1.56, buoyed by the growing interest in tokenized on-chain funds. However, the token has since experienced a significant decline, currently trading at $0.6865 — a stark contrast that reflects the broader cooling of the RWA sector.

Adding to Ondo Finance’s challenges is the looming possibility of Federal Reserve interest rate cuts.

The CME’s FedWatch Tool indicates that there is a 67.5% likelihood of a 25 basis points reduction in rates next month. Such a move could have far-reaching implications for projects like Ondo Finance, as many RWA-related funds are linked to short-term US debt instruments.

These anticipated cuts could reduce the attractiveness of these investments, leading to a potential decline in fresh capital inflows.

Funds like Franklin Templeton’s FBOXX, Hashnote’s USYC, and those managed by Ondo Finance have their yields closely aligned with the Fed funds rate. Any reduction in this rate may lead to lower yields, diminishing the appeal of these investments to potential investors.

As a result, the future of Ondo Finance and similar projects could be at risk as they struggle to maintain the momentum that once drove their success.

As the initial excitement around tokenized funds subsides, both on-chain transaction volumes and secondary market activities for related tokens have seen a downturn. This trend was evident when ONDO’s trading volume surged following the BlackRock collaboration but began to taper off as the broader market conditions shifted.

While Ondo Finance once rode the wave of RWA enthusiasm to new heights, the current market environment poses significant challenges. Investors remain cautious, considering the potential long-term viability of the project in the face of changing economic conditions and evolving investor sentiment.

While the price of ONDO token has seen a slight increase today, its value has dropped by over 34% in the past month, underscoring an overall bearish outlook for the token.

The post Ondo Finance faces headwinds as RWA interest fades and Fed cuts loom appeared first on Invezz

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