Aave proposes a new plan for Horizon to push RWA products, and the community explodes, and the founders respond urgently......

Written by Weilin, PANews

AAVE, which has always been sought after by the community, has recently sparked an unprecedented wave of skepticism in the community.

Aave Labs recently launched a new initiative called Horizon to develop a product that enables institutional adoption of decentralized finance through real-world asset (RWA), a RWA product that allows institutions to borrow USDC and GHO at scale using tokenized money market funds (MMFs) as collateral. With this product, Aave Labs hopes to further bridge the gap between traditional finance and DeFi.

However, in the days following the proposal's release, there was strong opposition from the community to the Horizon plan, especially questions about the potential issuance of new tokens and Horizon's profit-sharing mechanism.

The "temperature assessment" is waiting for permission from the community, and Horizon's profit distribution and new token distribution have become the focus of controversy

According to the Temp Check proposal, Aave Labs said that the demand for tokenized real-world assets (RWAs) is on the rise due to its ability to increase liquidity, reduce costs, and enable round-the-clock programmable transactions – making traditional assets more accessible on-chain. Tokenized U.S. Treasuries grew 408% year-over-year to $4 billion, and in the process, institutional adoption accelerated, with on-chain RWA expected to reach $16 trillion over the next 10 years. To address this growth, Horizon, an Aave Labs initiative, proposes to launch an RWA product to run as a licensed 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, unlock stablecoin liquidity, and expand institutional access to DeFi.

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

According to Aave Labs, Horizon will have several key design components, a permissioned RWA token supply and withdrawal mechanism, permissionless USDC and GHO supply capabilities, stablecoin lending for qualified users, a dedicated GHO facilitator that supports on-demand GHO minting, a permissioned liquidation process, integration with ERC-20 tokens within RWA's allowlisted, and asset-level authority control managed by RWA issuers.

According to Aave Labs, Horizon will implement a structured profit-sharing mechanism. Specifically, 50% of the profits will be distributed to the 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 the Aave DAO, as follows:

10% is allocated to the Aave DAO treasury

3% is set aside for Aave ecosystem incentives

2% is distributed to Staked Aave (stkAAVE) holders in the form of an airdrop

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 remain independent of configuring the instance and guiding the strategic direction of the product, including adapting to market changes, meeting organizational needs, and expanding into new networks.

The community reacted strongly: the profit distribution ratio is only 10% after 4 years, and the use case for the new token is unknown

However, the launch of the Horizon program did not receive widespread support from the community, but instead sparked fierce opposition. EzR3aL, an independent representative of the Aave DAO, said, "I think this rate of decline (the distribution ratio of benefit-sharing) is too aggressive and doesn't even follow the guidelines here. Because we can all agree that Years 1 and 2 will likely be the market launch phase, so the revenue won't be too high, unless Aave Labs promises to provide liquidity support beforehand, and such a commitment, if any, should be shared with the DAO in order to estimate the potential revenue. Otherwise, I think the really significant revenue probably won't come until year 3 and beyond, and by then the profit share has dropped to 10%, which baffles me.

Guide mentioned by EzR3aL: Aave's profit share: 20% distributed monthly; Aave DAO's Token Supply: 7% of the total supply is allocated at the time of TGE (Token Generation Event) or before deployment (if TGE has already occurred). If the tokens are rebenchmarked or inflated in the future, the Aave DAO will receive additional tokens to avoid dilution.

Next is the token allocation alignment, which is where I'm most confused, EzR3aL said. Is it (the new token) for independent governance? Is decentralized governance really necessary for a licensed marketplace that is only accessible to qualified institutions? Is it for Aave/Avara investors to be compensated? Because VCs often expect this arrangement if profits can't 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 GHO's casting process work? Will the core instance of Aave mint GHO and then lend to it, or will the instance be able to mint GHO directly and receive the revenue generated by GHO borrowing? Finally, "Aave DAO and its service providers will oversee the operational functionality of Horizon's RWA offering." What does that mean? Under the V3 release, what parts of that instance will the DAO control? But once the V4 version is launched, will the DAO no longer have anything to do with it?

More worryingly, EzR3aL said, the Aave token appears to be being abandoned, while another product based entirely on the Aave codebase (the development of which the DAO funded through multiple funding proposals, and the V4 version alone cost $12 million last year) was launched.

"It looks like AaveLabs and Avara are looking for ways to monetize the product, and that's no problem at all. I've been behind all of this since the days of Ethlend. To get a large institution on-chain, it definitely requires a lot of resources. But there could be other, better ways to do this to align it with the community and the DAO. For example, Horizon could be allowed to pay fees in USDC and GHO, and the DAO would retain those fees, while potentially restricting Horizon's governance to some extent due to legal issues."

EzR3aL thinks that if we do this, we can create a super DApp, Aave, and split it into two branches:

Aave Marketplace: For on-chain DeFi ecosystems and on-chain treasury bonds

Horizon Marketplace: For organizations that want to be fully compliant and legally on-chain

At the same time, other community members also criticized the issuance of the new token. Gregrwalsh said: "I don't really like the proposed token issuance. I don't understand why the Aave token should be diluted. If for some reason a new token is needed, then a 1:1 relationship with the Aave token should be maintained, and holders should be allocated accordingly according to the proportion. In addition, Aave DAO's revenue share is also decreasing. This is clearly planned to operate as a new entity. I am not in favor of this proposal. ParkerB123 said: "In my opinion, there is no reason to issue a new token. If it's for governance purposes, then it makes sense to use $AAVE itself as a governance token, as this is an initiative by AAVE Labs.

0xLouisT, an investment partner at L1D, pointed out even more harshly that launching a new token for a new line of business is a scam. Is Amazon spinning off AWS into a new company? Did Apple launch a separate stock for AirPods? Apparently not. The investor support agreement is both for its current business and for its future potential. Split tokens, on the other hand, are the opposite – and that's a huge red flag. The market will penalize it. If we want cryptocurrencies to be taken seriously, projects need to start operating like serious businesses.

Stani, founder of Aave, responded: The consensus of the DAO will be respected

After a few days of fermentation, Aave's founder and CEO, Stani Kulechov (@StaniKulechov), responded on March 16 that the overall consensus of the Aave DAO was that there was no interest in other tokens. This consensus will be respected, and the Aave DAO is a real DAO. RWA exploration will continue once a suitable method is found.

"It's clear at the moment that the DAO has reached a consensus that even if the token can accelerate Aave's revenue growth by launching liquidity, it won't generate widespread interest. Our team is also not going to stick to the proposal, especially since this is the least exciting part of the temperature check, and I believe there are other ways to find out how to channel liquidity and revenue streams through a centralized business and products that are interested in using the Aave technology stack."

Stani further noted that RWA is an extremely significant revenue exposure to the Aave DAO and, as previously mentioned, should not be overlooked, so we will revise the proposal to take feedback into account. We must remember that the Aave DAO is a real DAO, any initial discussions and consensus reached must be respected, and our team has no interest in pushing anything that the DAO deems inappropriate. That's why smart money is wagered on $AAVE.

Crypto researcher @0xCoumarin said that in fact, AAVE's Horizon proposal could have been split into smaller sub-proposals. The demands of DAOs are actually quite simple: 1. Don't use new tokens, the money that attracts liquidity can be withdrawn by AAVE DAO; 2. The proportion of protocol revenue to AAVE DAO needs to be increased. It is a general trend for DeFi protocols to move closer to institutions, and the launch of Horizon can increase the revenue of AAVE DAO, that is, more or less. In addition, Horizon will support $GHO as the primary loaned stablecoin, which will increase the market size and revenue of AAVE's stablecoin business.

The community's concerns are understandable, and if new token issuance and decreasing profit sharing ratios are allowed, then the team will definitely focus more on building Horizon from the perspective of making money. Horizon itself is also an institution-oriented product, and does not require the expectation of new tokens to do points activity for growth, $AERO the analogy to $VELO does not hold up here.

The distribution details of the new tokens are also strange. Only 15% will be allocated to the Aave DAO, 10% will go to the Aave DAO pool, 3% will be reserved for Aave ecosystem incentives, and 2% will be airdropped to Staked Aave (stkAAVE) holders. It is reasonable to assume that AAVE Labs will receive a large amount of token-based funding from the remaining 85%, which is why the community believes that the team is making money by starting new projects. All in all, the launch of Horizon is a good thing, and it depends on how the community and the team agree on the distribution of benefits.