Horizon by Aave Labs Proposes 50% Revenue Share for RWA Integration

Horizon by Aave Labs has introduced an innovative proposal aimed at integrating real-world assets (RWAs) into decentralized finance (DeFi), with the goal of enhancing institutional access to stablecoin liquidity. This initiative seeks to bridge the gap between traditional finance and DeFi ecosystems by offering a structured profit-sharing mechanism with the Aave DAO, ensuring alignment with institutional demands while maintaining the ethos of DeFi.

The proposed RWA product is designed to facilitate institutional use of tokenized money market funds (MMFs) as collateral for borrowing popular stablecoins, including USDC and Aave’s GHO. This move is expected to significantly boost liquidity for stablecoins, enabling broader access for institutional investors to the DeFi landscape. The integration of regulatory compliance with the benefits of decentralized finance is anticipated to benefit the broader Aave ecosystem.

Horizon’s RWA product is set to commence as a licensed instance of Aave V3, with plans for a future transition to a specialized deployment for Aave V4. A structured profit-sharing mechanism has been proposed, with Horizon offering a 50% revenue share to Aave DAO in the first year, along with strategic incentives to promote ecosystem growth. Additionally, if Horizon issues its token, a significant 15% of the supply is earmarked for the Aave DAO treasury and ecosystem incentives, with additional allocations for staked AAVE holders.

The surge in interest around RWAs has attracted major financial institutions, effectively bridging traditional finance and DeFi. Investors are now presented with unprecedented opportunities for yield-bearing asset access, with key players leading the charge. However, the permissionless nature of DeFi presents regulatory hurdles that must be addressed to facilitate large-scale participation from institutional investors.

Horizon’s approach aims to bridge this gap by providing an avenue for institutions to access both compliant and permissionless liquidity in stablecoin form. The initiative focuses on ensuring that compliance and risk management measures are met for asset issuers. Tokenized asset issuers can establish transfer restrictions and manage controls at the asset level, with qualified users being the only entities allowed to borrow USDC and GHO through Horizon’s initiative.

The dedicated GHO Facilitator will enable GHO minting backed by RWA collateral, providing stable borrowing rates optimized for institutional participants. This infrastructure aims to boost security, scalability, and the adoption of RWAs in the DeFi sector. Building upon the institutional framework laid by Aave Arc, Horizon intends to implement a permissioned token supply model, encompassing withdrawal mechanisms, stablecoin borrowing opportunities for qualified users, and permissioned liquidation processes to ensure regulatory compliance.

Establishing a licensed instance of Aave’s protocol necessitates an off-chain legal structure, coordinated regulatory efforts, and diligent oversight. The operational management of Horizon’s RWA product will fall under the purview of the Aave DAO and its service providers, with Horizon maintaining autonomy in configuring its version and managing its strategic direction. The proposal is currently open for consideration by the Aave DAO to approve Horizon’s RWA product for the protocol’s licensed instance.

The forthcoming steps include refining the proposal with input from the Aave community and service providers. Should there be a consensus, the proposal will move to a Snapshot vote. If the vote is favorable, the proposal will progress to the final governance stage for official approval. This initiative by Horizon by Aave Labs represents a significant step towards enhancing institutional access to DeFi and stablecoin liquidity, paving the way for broader adoption and integration of real-world assets into the decentralized finance ecosystem.