Horizon by Aave Proposes RWA Product to Enhance Institutional Access to DeFi and Stablecoin Liquidity

• Aave Labs’ Horizon has initiated an ambitious proposal aimed at integrating real-world assets (RWAs) into decentralized finance (DeFi), opening new avenues for institutional finance.

• This innovative RWA product seeks to enhance liquidity and stablecoin access while bridging the gap between traditional finance and DeFi ecosystems.

• “Our proposal includes a structured profit-sharing mechanism with the Aave DAO, allowing for alignment with institutional demands while maintaining the ethos of DeFi,” Horizons stated.

Horizon by Aave Labs aims to revolutionize DeFi by introducing a licensed RWA product, offering institutions access to stablecoins while ensuring compliance and innovation.

Horizon Proposes RWA Product as Licensed Instance of Aave Protocol

In a recent press release to COINOTAG, Aave Labs’ Horizon revealed plans to launch a new RWA product as a licensed instance of the Aave Protocol. This strategic initiative is set to facilitate institutional use of tokenized money market funds (MMFs) as collateral for borrowing popular stablecoins, including USDC and Aave’s GHO.

The introduction of this product is anticipated to significantly boost liquidity for stablecoins, thus enabling broader access for institutional investors to the DeFi landscape. Specifically, this move aims to integrate regulatory compliance with the benefits of decentralized finance, ultimately benefiting the broader Aave ecosystem.

The rising trend of tokenized real-world assets demonstrates the avant-garde potential of blockchain technology in enhancing liquidity, minimizing transaction costs, and automating programmable financial transactions.

Recent statistics reveal a remarkable growth in tokenized US Treasuries, which surged by 408% year-over-year, reaching a valuation of $4 billion, highlighting the increasing interest in tokenized assets.

Tokenized US Treasuries. Source: rwa.xyz

Pending approval from the Aave DAO, Horizon’s RWA product plans to commence as a licensed instance of Aave V3, with a future transition to a specialized deployment for Aave V4. A structured profit-sharing mechanism has been proposed to ensure alignment with Aave DAO’s long-term goals.

“Horizon proposes a 50% revenue share to Aave DAO in Year 1, along with strategic incentives to promote ecosystem growth,” the initiative explained to COINOTAG.

Moreover, 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 piqued the interest of major financial institutions, effectively bridging traditional finance (TradFi) and DeFi. Investors are now presented with unprecedented opportunities for yield-bearing asset access, with key players like BlackRock, Franklin Templeton, and Grayscale leading the charge.

Institutions To Access Regulated But Permissionless Stablecoin Liquidity

Despite the prospects, the inherent permissionless nature of DeFi presents regulatory hurdles that must be addressed. The current landscape lacks the necessary compliance frameworks that would facilitate large-scale participation from institutional investors.

Real-world integration of RWAs into DeFi is still a challenging endeavor without tailored solutions. 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 also 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. “Qualified users will be the only entities allowed to borrow USDC and GHO through Horizon’s initiative,” the announcement indicated.

“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,” Horizon elaborated.

Building upon the institutional framework laid by Aave Arc, Horizon intends to implement a permissioned token supply model. This will encompass withdrawal mechanisms, stablecoin borrowing opportunities for qualified users, and permissioned liquidation processes to ensure regulatory compliance.

Although Aave’s permissionless design is often viewed as its main advantage, the integration of RWAs into its ecosystem introduces complexities beyond smart contract development.

Establishing a licensed instance of Aave’s protocol necessitates an off-chain legal structure, coordinated regulatory efforts, and diligent oversight. It is important to note that the Aave DAO is not intended to independently manage these functions.

The operational management of Horizon’s RWA product will fall under the purview of the Aave DAO and its service providers. Nonetheless, Horizon will maintain 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.

AAVE Price Performance. Source: COINOTAG

According to recent data from COINOTAG, the price of AAVE stood at $173.44 at the time of reporting, reflecting a minor decrease of 0.24% since the market opened on Thursday.