Aave proposed a new plan for Horizon to promote RWA products, and the community was in full swing, and the founder responded urgently...

Author: Weilin, PANews

AAVE, which has always been popular among the community, has recently triggered unprecedented doubts in the community.

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

However, within a few days after the proposal was released, the community showed strong opposition to the Horizon plan, especially the possibility of the new tokens and Horizon's profit distribution mechanism.

"Temperature Assessment" awaits community permission, Horizon's profit

distribution and new token distribution have become the focus of controversy

According to the Temp Check proposal, Aave Labs said that because tokenization can improve liquidity, reduce costs, and enable 24/7 programmable transactions, the demand for tokenized real-world assets (RWA) is rising -making traditional assets easier to acquire on-chain. Tokenized U.S. Treasury bonds increased by 408% year-on-year to $4 billion. In this process, institutional adoption has accelerated, and it is expected that the scale of on-chain RWA may reach $16 trillion in the next 10 years. To meet this growing demand, Horizon, a project initiated by Aave Labs, proposes to launch an RWA product to run as a licensed instance of the Aave agreement. Horizon will allow institutions to use tokenized money market funds (MMFs) as collateral to borrow USDC and GHO on a large scale, unleash stablecoin liquidity and expand institutional access to DeFi.

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

According to Aave Labs, Horizon will have multiple key design components, licensed RWA token supply and withdrawal mechanisms, licensed USDC and GHO supply capabilities, stablecoin lending for qualified users, exclusive GHO facilitators, support for on-demand minting of GHOs, licensed liquidation processes, integration with ERC-20 tokens within the RWA whitelist, and controlled by asset-level permissions managed by RWA issuers.

Aave Labs said Horizon will implement a structured profit sharing mechanism. Specifically, 50% of the profit 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:

• 10% allocated to Aave DAO Treasury
• 3% reserved for Aave ecosystem incentives
• 2% allocated to Staked Aave (stkAAVE) holders in airdrop form

In terms of operational support , Aave DAO and its service providers will oversee the operational capabilities of Horizon RWA products. Meanwhile, Horizon will retain independence, 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 a new network.

The community strongly responded: Profit distribution ratio is only 10%

after 4 years, and the use cases of new tokens are unknown

However, the launch of the Horizon program did not receive universal support from the community, but instead sparked fierce opposition. EzR3aL, independent representative of Aave DAO, said, “I think this rate of decline (the share of benefits) is too radical and doesn’t even follow the guidelines here. Because we can all agree that Years 1 and 2 may be market launch phases, so revenue will not be too high unless Aave Labs promises liquidity support in advance, such a commitment, if any, should be shared with DAO in order to estimate potential income. Otherwise, I think that truly considerable income may not appear until Year 3 and beyond, and that profit share has dropped to 10% by then, which is confusing me.

Guidelines mentioned by EzR3aL: Profit sharing for Aave: 20% per month; Token supply for Aave DAO: 7% of the total supply is allocated during TGE (token generation event) or before deployment (if TGE has already occurred). If the token is rebased or inflation in the future, Aave DAO will receive additional tokens to avoid being diluted.

EzR3aL said that next is token allocation alignment, which part is what makes me most confused. Is it (new token) for independent governance? Is decentralized governance really necessary for a licensed market that is only accessible to qualified institutions? Is it to get compensation from Aave/Avara investors? 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 contain a profit sharing mechanism as one of the functions?

In addition, he proposed how the GHO casting process will work? Will Aave's core instance mint GHO first and then lend it to the instance, or can the instance directly mint GHO to obtain the income brought by GHO lending? Finally, “ Aave DAO and its service providers will oversee the operational capabilities of Horizon’s RWA products.” What does this mean? In V3 version, what parts of the instance will DAO control? But once the V4 version is released, will DAO no longer have anything to do with it?

EzR3aL said that it is even more worrying that Aave tokens appear to be abandoned, while another product based entirely on the Aave codebase (DAO funded the development of the codebase through multiple funding proposals, which cost $12 million in the V4 version alone last year).

"It looks like AaveLabs and Avara are looking for ways to monetize this product, and that's totally fine. I've been supporting this since the Ethlend era. To get large institutions on the chain, it certainly requires a lot of resources to be invested. But there can be other better ways to align it with the community and the DAO. For example, Horizon can pay for the USDC and GHO and keep those fees by the DAO, while potentially limiting Horizon's governance due to legal issues."

EzR3aL believes that if we do this, we can create a super DApp - Aave and divide it into two branches:

• Aave Market : For on-chain DeFi Ecosystem and on-chain Treasury Debts
• Horizon Market : For institutions that want to be fully compliant and legally linked

Meanwhile, other community members have also criticized the issuance of new tokens. Gregrwalsh said: I don’t really like the proposed token issuance method. I don't understand why Aave tokens are diluted. If a new token is needed for some reason, then a 1:1 relationship should be maintained with the Aave token and the holder should get the corresponding distribution based on the ratio. In addition, Aave DAO's revenue share is also declining. This is obviously planned to operate as a new entity. I don't agree with this proposal. ParkerB123 said: In my opinion, there is no reason to issue a new token. If it is for governance purposes, then $AAVE itself should be used as the governance token, after all, this is an initiative of AAVE Labs.

L1D Investment Partner 0xLouisT pointed out more sternly that launching new tokens for new business lines is a scam. Will Amazon spin off AWS into a new company? Has Apple launched a separate stock for AirPods? Obviously not. Investor support agreements are for both their current business and their future potential. The opposite is true for splitting the tokens - this is a huge red flag. The market will punish it. If we want cryptocurrencies to be valued, projects need to start operating like serious businesses.

Aave founder Stani responded: DAO consensus will be respected

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

"It is clear that DAO has reached a consensus that even if the tokens can accelerate Aave's revenue growth by launching liquidity, it won't be aroused widespread interest. Our team is not going to stick to the proposal, especially since it's 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 centralized businesses and products that are interested in using the Aave technology stack."

Stani further pointed out that RWA is an extremely important income exposure to Aave DAO and, as mentioned earlier, should not be ignored, so we will revise the proposal to consider feedback. We must remember that Aave DAO is a real DAO, and any initial discussion and consensus reached must be respected, and our team has no interest in promoting anything that DAO believes is inappropriate. That's why smart funds bet on $AAVE.

Crypto researcher @0xCoumarin said that in fact, AAVE's Horizon proposal can be completely split into some more subproposals. DAO’s demands are actually very simple: 1. Don’t have new tokens, money that attracts liquidity can be paid by AAVE DAO; 2. The proportion of the agreement income given to AAVE DAO needs to be increased. It is a big trend for the DeFi protocol to move closer to institutions. The launch of Horizon can increase AAVE DAO revenue, that is, more or less. In addition, Horizon will support $GHO as the main loaned stablecoin, which can increase the market size and revenue of the AAVE stablecoin business.

The community's concerns are also understood. If new tokens are allowed and the decreasing share ratio is allowed, then from the perspective of making money, the team will definitely focus more on the construction of Horizon. Horizon itself is also an institutional-oriented product, and does not require the expected new tokens to make points activities to grow. The analogy of $AERO to $VELO is not valid here.

The distribution details of the new tokens are also strange. Only 15% will be allocated to Aave DAO, 10% will enter the Aave DAO funding pool, 3% will be reserved for Aave ecosystem incentives, and 2% will be airdropped to Staked Aave (stkAAVE) holders. Then it is reasonable to speculate that AAVE Labs will obtain a large amount of token-based financial revenue from the remaining 85%, which is also the reason why the community believes that the team is making money by opening new projects. To sum up, Horizon's launch is a good thing, it depends on how the community and team agree on the distribution of benefits.