Aave Labs launches Horizon RWA product, but faces community opposition

Aave, which has always been popular in the community, has recently aroused unprecedented doubts from the community.

Aave, which has always been popular in the community, has recently aroused unprecedented doubts from the community.

Aave Labs recently launched a new initiative called Horizon, which plans to develop products that enable institutional adoption of decentralized finance through real-world assets (RWA), namely an RWA product that allows institutions to use tokenized money market funds (MMFs) as collateral to borrow USDC and GHO on a large scale. Aave Labs hopes to further bridge the gap between traditional finance and DeFi through this product.

However, within a few days of the proposal being released, the community expressed strong opposition to the Horizon plan, especially questioning the potential issuance of new tokens and Horizon’s profit distribution mechanism.

"Temperature Assessment" awaits community approval, Horizon’s profit distribution and new token distribution become the focus of controversy

According to the Temp Check proposal, Aave Labs said that the demand for tokenized real-world assets (RWA) is rising due to tokenization's ability to increase liquidity, reduce costs, and enable programmable transactions around the clock - making traditional assets more accessible on-chain. Tokenized U.S. Treasuries grew 408% year-on-year to $4 billion, and institutional adoption accelerated in the process, with on-chain RWAs expected to reach $16 trillion in the next 10 years. To meet this growth demand, Horizon, a project initiated by Aave Labs, proposed to launch an RWA product that would run as a permissioned instance of the Aave protocol. Horizon will allow institutions to use tokenized money market funds (MMFs) as collateral to borrow USDC and GHO at scale, unlocking stablecoin liquidity and expanding institutional access to DeFi.

After approval by Aave DAO, Horizon's RWA product will be launched as a licensed instance of Aave V3, and will be migrated to a custom Aave V4 deployment as soon as possible. To support long-term alignment with Aave DAO, Horizon will implement a structured profit-sharing mechanism, allocating 50% of revenue to Aave DAO in the first year, and driving ecosystem growth through strategic incentives.

According to Aave Labs, Horizon will have several key design components, including a permissioned RWA token supply and withdrawal mechanism, permissionless USDC and GHO supply functions, stablecoin lending for qualified users, exclusive GHO facilitators, support for on-demand GHO minting, a permissioned liquidation process, integration with ERC-20 tokens in the RWA whitelist, and asset-level permission control managed by the RWA issuer.

Aave Labs said that Horizon will implement a structured profit-sharing mechanism. Specifically, 50% of the profits will be distributed to Aave DAO in the first year, 30% in the second year, 15% in the third year, and 10% in the fourth year and beyond.

In addition, if Horizon issues tokens, 15% will be allocated to Aave DAO as follows: In terms of operational support , Aave DAO and its service providers will oversee the operational functions of the Horizon RWA product. At the same time, Horizon will retain independence and be responsible for configuring the instance and guiding the strategic direction of the product, including adapting to market changes, meeting institutional needs, and expanding to new networks.

Strong community reaction: Profit distribution ratio is only 10% after 4 years, and the use case of new tokens is unclear

However, the launch of the Horizon plan did not receive general support from the community, but instead triggered fierce opposition. EzR3aL, an independent representative of Aave DAO, said, "I think this decline rate (the distribution ratio of profit sharing) is too aggressive and does not even follow the guidelines here. Because we can all agree that the first and second years may be the market launch stage, so the income will not be too high, unless Aave Labs has promised to provide liquidity support in advance, and such a commitment, if any, should be shared with the DAO to estimate potential income. Otherwise, I think the real significant income may not appear until the third year and beyond, and the profit sharing ratio has already been reduced to 10% by then, which confuses me.

EzR3aL said, Next is the token allocation alignment, which is the part that I am most confused about. Is it (the new token) for independent governance? Is decentralized governance really necessary for a permissioned market that is only accessible to qualified institutions? Is it for investors in Aave/Avara to be compensated? Because VCs usually expect this arrangement if profits cannot be shared in other ways. Is it a way for Aave Labs/Avara to generate profits? Because it may include a profit sharing mechanism as one of the features?

In addition, he asked, how will the minting process of GHO work? Will the core instance of Aave