[Temp Check] Building Horizon’s RWA Product: An Aave Licensed Instance for Institutions

[AaveLabs]

---

Title: [TEMP CHECK] Building Horizon’s RWA Product: An Aave Licensed Instance for Institutions
Author: @AaveLabs
Date: 2025-03-13

---

Summary

The demand for tokenized real-world assets (RWAs) is rising as tokenization enhances liquidity, lowers costs, and enables 24/7 programmable transactions—making traditional assets more accessible onchain. Tokenized U.S. Treasuries have grown 408% YoY to $4 billion, with institutional adoption accelerating and projections estimating up to $16 trillion in RWAs onchain over the next decade.

To meet this growing demand, Horizon –an Aave Labs initiative– proposes launching an RWA product as a licensed instance of the Aave Protocol. Horizon will enable 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.

Subject to Aave DAO approval, Horizon’s RWA product will launch as a licensed instance of Aave V3, and transition to a custom Aave V4 deployment once available. To support long-term alignment with the Aave DAO, Horizon will implement a structured profit-sharing mechanism, starting with a 50% revenue share to Aave DAO in Year 1, alongside strategic incentives to drive ecosystem growth.

This Temp Check invites community feedback on launching Horizon’s RWA product as an Aave licensed instance.

Motivation

The Institutional Adoption Gap in RWAs

Tokenization is fundamentally reshaping financial infrastructure. We believe all assets will eventually be onchain, harnessing DeFi as a more resilient financial system.

Traditional and crypto-native asset managers have taken note, issuing tokenized MMFs to meet the rising demand for low-risk, yield-bearing onchain assets. These MMFs serve as a key bridge between traditional finance and DeFi, reinforcing institutional confidence in onchain markets.

However, DeFi’s open architecture lacks the compliance, governance, and risk management frameworks required for institutional adoption. Without tailored solutions, participation remains limited, and integrating RWAs at scale remains a challenge.

Horizon: Institutional Capital Meets DeFi

Horizon bridges this gap by enabling institutions to access permissionless stablecoin liquidity while meeting issuer requirements. Tokenized asset issuers will be able to enforce transfer restrictions at the token level and maintain asset-level controls, while preserving DeFi composability. Qualified users, permissioned by RWA issuers, will be able to borrow USDC and GHO. Subject to Aave DAO approval, separate GHO Facilitator will enable GHO minting with RWA collateral, offering predictable borrowing rates optimized for institutions. This enhances security, scalability, and institutional adoption of RWAs in DeFi.

Building on insights from Aave Arc’s institutional framework, Horizon provides a structured approach to institutional participation, expanding access to permissionless stablecoin liquidity.

Key Design Components:

• Permissioned RWA token supply and withdrawal mechanisms
• Permissionless USDC and GHO supply functionality
• Stablecoin borrowing by qualified users
• Dedicated GHO facilitator with newly minted GHO on demand
• Permissioned liquidation workflow
• Integration with RWA-allowlisted ERC-20 tokens
• Asset-level permission management by RWA issuers

Specification

Strategic Benefits for the Aave Community

The Aave Protocol’s permissionless design is a core strength. However, integrating permissioned RWAs presents challenges that go beyond smart contract development, requiring an offchain legal structure, regulatory coordination, and active supervision—functions not readily available within the Aave DAO infrastructure.

To scale RWA adoption in DeFi while preserving Aave’s neutrality and composability, Horizon’s RWA product will launch as a licensed instance of Aave V3, maintaining alignment with the Aave DAO.

Profit Share Mechanism

A portion of Horizon’s profit will be allocated to the Aave DAO, as outlined in the below schedule.

Distribution Period	Aave DAO Profit Share %
Year 1	50%
Year 2	30%
Year 3	15%
Year 4+	10%

Token Distribution Alignment

Should Horizon launch a token, 15% will be allocated to Aave DAO, distributed as follows:

• 10% to Aave DAO treasury
• 3% reserved for Aave ecosystem incentives
• 2% airdropped to Staked Aave (stkAAVE) holders

GHO Adoption & Revenue

Horizon will enable institutional borrowing against RWAs with GHO as a primary liquidity option, alongside USDC, which is expected to:

• Drive GHO adoption
• Enhance the liquidity and stability of GHO
• Strengthen GHO’s role as a settlement asset
• Generate revenue through GHO borrowing

Operational Support

The Aave DAO and its service providers will oversee the Horizon’s RWA product’s operational functionality. Meanwhile, Horizon retains independence in configuring the instance and steering the strategic direction of the product, including adapting to evolving market conditions, catering to institutional needs, and expanding to new networks.

• Aave V3: Aave DAO will operationally control the instance, while Horizon retains permissions to enable/disable assets, configure risk parameters and price oracles, target specific networks for deployments, and administer supply/borrow caps.
• Aave V4: With Aave V4’s immutable and modular design, Horizon will determine the optimal configuration of the instances upon release.

Considerations by the Aave DAO

Approve Horizon’s RWA product as a licensed instance based on the existing Aave DAO framework.

Horizon’s RWA product will expand the Aave ecosystem’s institutional reach while preserving its permissionless integrity. As a licensed instance, it generates new revenue streams for the Aave DAO, accelerates GHO adoption, and reinforces the Aave DAO’s role as a service provider—driving long-term value for the ecosystem.

Next Steps

1. Engage with the community and service providers to refine the detailed proposal
2. If consensus is reached on this TEMP, escalate this proposal to the Snapshot stage
3. If the TEMP snapshot outcome is YAE, incorporate stakeholder feedback and move proposal to ARFC stage

Copyright

Copyright and related rights waived via CC0.

[gregrwalsh]

Not a fan of the proposed token launch. Unclear to me why diluting the Aave token makes sense. If for some reason a new token is needed there should be a 1:1 relationship to Aave tokens and holders receive their allocation accordingly. There is a declining revenue share w Aave DAO as well. This is planned as a new entity clearly. Not in favor.

[ParkerB123]

No reason for there to be a new token in my opinion. If it’s for Governance purposes then surely $AAVE itself should be the token used in that capacity, considering this is an AAVE Labs initiative.

[corce]

Why to launch a token?

[corce]

I totally agree… Imo it makes no sense to launch another token when the Aave token already exists

[MakeAaveGreatAgain]

Aave itself isn’t fully empowered yet, new token are completely unnecessary unless it’s a scam, I will vote NAY.

[AaveGuardian]

Had to make an account just to say absolutely no new token. Keep working on empowering Aave holders

[FintechGuy]

I had to make an account also just to 100% explicitly confirm that this proposal will be absolutely detrimental to the $AAVE token

This looks 100% like a money grab by the AAVE labs team at the cost of their community and would significantly harm the reputation of the brand within the crypto community

There needs to be an extremely thorough explanation as to why there needs to be a new token that will vampire away attention and capital from the $AAVE token

Additionally the revenue share is egregious as most of the revenue will materialize in later years not early years, there needs to be a much higher % of revenue share directly to the AAVE DAO otherwise this is Uniswap laps misalignment with UNI token all over again

If this proposal goes through I will be dumping my entire very large stack of AAVE

An alternative and better solution would be to simply grant AAVE Labs team additional AAVE tokens based on the success of Horizon and various milestones while all the revenue accrues to the AAVE DAO

[zkMoira]

I strongly disagree with introducing a new token for Horizon and diluting the Aave token. Moreover, the proposed revenue-sharing model seems frontloaded to early years when adoption (and thus revenue) will likely be lowest, assuming growth over time. This misaligns incentives and undermines long-term value for the Aave DAO.

If a new token is created, an informal revenue share that declines over time is egregious. The Aave DAO should maintain control of at least 60-70% of the new token and therefore retain ownership of at least 60-70% of revenues in perpetuity.

Did you expect Aave token holders to respond favorably to this proposal or is the plan simply to ram it through governance?

[starny]

I am a significant delegate of the @ACI and I eagerly await their response, which I believe will more effectively articulate my concerns regarding the proposed launch of a new token for Horizon. Here’s my take on the matter:

I strongly disagree with the introduction of a new token for Horizon. The proposal to dilute the Aave token’s value by creating a separate token for this initiative seems counterintuitive and potentially detrimental to the existing ecosystem. The Aave DAO should prioritize leveraging its existing infrastructure and token, rather than fragmenting its community and resources.

Concerns with the Proposal:

1. Token Dilution: Creating a new token could lead to a diversion of attention and capital away from the Aave token, potentially harming its value and the community’s trust.
2. Revenue Sharing Model: The proposed revenue-sharing model, which decreases over time, seems misaligned with the long-term interests of the Aave DAO. It would be more equitable to maintain a higher percentage of revenue sharing with the DAO, especially as the project grows.
3. Governance and Control: If a new token is deemed necessary, it should be closely tied to the Aave token, ensuring that existing holders benefit proportionally. The Aave DAO should retain significant control over any new token to ensure alignment with its strategic goals.
4. Institutional Needs: While Horizon aims to bridge the gap between traditional finance and DeFi, it should do so in a manner that strengthens the Aave ecosystem rather than creating new entities that could compete with it.

In conclusion, I believe that we should focus on enhancing its existing framework rather than introducing new tokens that could dilute its value and undermine community trust. I look forward to the @ACI’s response, which I believe will better articulate these concerns and provide a more comprehensive perspective on this proposal.

[Tor_GAINS]

Hey. Proud ACI delegator here.

Took a break from the forum for a few weeks (been busy, and honestly, ACI usually says what I am thinking anyway.)

I am completely against deploying a new token. AAVE makes up 50%+ of my portfolio, and this move would set a dangerous precedent for the DAO/protocol. We cannot allow that.

Horizon will likely take months, if not years, to become fully profitable and sustainable. So the decreasing % over four years also feels unfair.

Let’s rework the proposal so it supports both AAVE Labs/Avara (we get that funding is needed) while prioritizing the DAO’s best interests.

DeFi needs to win, and so does AAVE. Let’s make sure we are on the right path to achieve this goal

[FintechGuy]

I think that a better alternative solution would be granting AAVE Labs additional AAVE tokens or even straight up USDC for hitting successful Horizon milestones and keep all the revenue within the AAVE DAO

[ApuMallku]

After months of silence, I feel it is necessary to express my strongest rejection of the idea of introducing a new token. This is essentially AAVE ARC 2.0—when AAVE ARC was deployed, no new token was needed. This appears to be a cash grab attempt by @AaveLabs, which is very disappointing for long-term AAVE holders.

100% of my tokens are delegated to @ACI, and I will wait to see their perspective before analyzing my stance on the vote

[LittleGhost]

While I agree that demand for RWAs is rising and that it is a good idea for Aave to position itself in this sector, I have significant concerns about introducing a new token.

Since Horizon is presented as an instance of Aave V3 (and later V4), I don’t fully understand the need to create this new token (except perhaps just to raise funds). The $AAVE token already exists, and creating another one would dilute $AAVE holders by splitting the revenue generated between two distinct tokens, both built on top of the same protocol.

Concerning the proposal itself:

1. I find it quite bold to use the words “long-term alignment with the Aave DAO”
   when the profit-sharing mechanism decreases by 40% after one year and is reduced fivefold after four years.

2. The 15% allocation to the DAO seems very low considering the crucial role it plays in keeping the protocol updated and secure, ensuring that Aave remains the leading player in the DeFi ecosystem.

3. The idea of airdropping a portion of the supply to stkAAVE holders is interesting, as they have been protecting the protocol for years. However, 2% still seems quite low.

I am looking forward to Aave Labs’ response to the community, but under these terms, I am not in favor of this proposal.

[gregrwalsh]

My sentiments exactlt

[gregrwalsh]

Totally agree with your post. Look forward to this being scrapped.

[MarcZeller]

Hello,

There’s only one token in the Aave ecosystem; its ticker is $AAVE.

As always, Aave Labs did zero peer review before publishing this proposal, and every service provider and major delegate is learning about Horizon today.

It’s good for decentralization and transparency, but the problem with being in an ivory tower is that you have no one to say, “eh, ummm,” when the proposal terms are outrageous.

The community reaction was extremely predictable, and my take is that Aave Labs anticipated it.

We have been noticing a pattern over the years with all the proposals coming from this actor. I’ll call it the “High Price Anchor” negotiation strategy. In simple terms: if you’re worth 5, ask for 20, and you might get 12.

This pattern has proven useful in the past, allowing Aave Labs to claim their own half the DAO service provider budget in 2024.

That budget was then used to build V4 and cover the payroll for people working on this “Horizon” project, only for them to come back to us, keeping 85% of a (unnecessary & dilutive) new token supply.

And we, the DAO, are supposed to use a third of our breadcrumb allocation to incentivize usage of their protocol when they eventually keep 90% of the revenue for themselves?

Also, it is convenient to propose an airdrop to StkAAVE holders, as Aave Labs is one of the largest stakers, making people believe they will make a quick buck at no cost to them while pocketing the lion’s share of the drop.

It will come as no surprise that while we believe a renewal of Aave ARC “2.0” is good for Aave, the current proposal is not even worth discussing in its current form.

The ACI will not support this TEMP CHECK, and we strongly encourage everyone in the Aave community to participate in this discussion.

[ApuMallku]

Case closed, your honor.

It might be worth opening the doors to other SPs who want to work in the RWA realm. I’m tired of the 4D chess that Stani et al. are promoting behind closed doors.

We can also fund the next Etheralize—but for AAVE.

[EzR3aL]

So first of all, Aave DAO exploring ways to get into RWA is probably the most important thing since GHO to generate significantly more revenue.
RWA, especially tokenized, have found their way to the blockchain and its only natural having them on the biggest lending protocol, dominating that vertical in every metric.

Having a separate instance for RWA makes sense to bridge the gap between on-chain degen and accredited investor.

So while in general I see a huge benefit, this proposal has a lot that confuses me and I hope @AaveLabs can clarify these points. Because reading the previous comments, there might be a lot people waiting for it.

Lets start with Profit Share Mechanism

I think its way too aggressive reduced overtime and does not even follow the guidelines here

WLFI for example is following this framework, which the DAO agreed upon.
Because I think we can all agree that year 1 & 2 will likely be the bootstrapping years and thus revenue wont be very high, unless AaveLabs has pre-liquidity commitments which would be useful to share with the DAO to estimate potential revenue. Otherwise I do think that solid revenue will only begin in year 3 and later, at which point profit share will be only 10%.

Next up Token Distribution Alignment that part that is the most confusing to me.

• What is or will be the usecase of a new token?

• Is if for separate governance? Is governance in a decentralized way even needed for this permissioned market only accessible for accredited entities?

• Is it to make investors into Aave/ Avara whole? Because thats what VCs usually expect if you are not able to share profit in any other way.

• Is it a way for Aave Labs/Avara to generate profits because it will have profit sharing as a feature?

I could keep going on, but would rather like to hear your opinion on this.

Also the allocation is pretty disappointing, talking from a perspective of a longterm LEND and AAVE investor and holder. First the total amount reflects what I hate about all the recent projects raising money and then sharing airdrops of a tiny friction of the whole supply with longstanding community member. This is a VC allocation, nothing else. Or what is about the other 85%?
Then only 2% are reserved for staked Aave holder, not even considering other relevant holder that made the DAO what it is today, im talking about people that delegated their voting power and thus their voice to make the Aave DAO what it is today thanks to many delegates, Service provider and individuals as well.

GHO Adoption & Revenue

What will the GHO minting process look like? Will the Aave core instance mint GHO and then lend them to this instance or will the instance be able to mint and thus receive the revenue from GHO borrowing?

Operational Support

@AaveLabs

The Aave DAO and its service providers will oversee the Horizon’s RWA product’s operational functionality.

What is meant by that?

And with v3 the DAO will control (which?) parts of the instance but as soon as v4 launches it has nothing to do with it anymore, right?

So overall there are a lot questions left open from this proposal but its concerning to see the Aave token kind of being ditched for another product which uses 100% of the Aave codebase which the DAO paid for in several funding proposal and just last year for v4 (12 million).

It seems like AaveLabs & Avara are looking for ways to monetize the product, which is totally fine and I am super happy to support this since Ethlend. The way to get big institutions on-chain pretty sure requires a lot.

But there could be other and better ways, aligned with the community and the DAO.
For example receive fees from Horizon in USDC & GHO and keep them, keep governance for Horizon gated maybe because of legal issues and so on.

I think that way we could create a super dapp called Aave with two branches (Aave markets & Horizon market), one for on-chain degen and on chain treasuries and one for institutions trying to find their way on-chain 100% legal and compliant.

[MrKris]

It isn’t frequently that I write such a critical post but I’m afraid this Temp Check in its current form is simply assuming far too much and providing far too little as well as from what I can see inherently adding risk.

I won’t dwell on the “new token” as I think consensus has already been reached on that, it’s a non starter but my take on the rest of the proposal is:

Erosion of Permissionless Integrity
Aave’s success stems from its permissionless design, allowing anyone to participate without gatekeepers. Horizon’s RWA product, however, introduces a permissioned framework where tokenized money market funds (MMFs) are restricted by issuers, and only “qualified users” can borrow USDC and GHO. This shift prioritizes institutional needs over retail users, creating a two-tiered system that dilutes Aave’s core value proposition. By embedding permissioned controls at the token and liquidation levels, Horizon risks fragmenting the protocol into a hybrid that compromises universal access—a move that could alienate Aave’s decentralized community and weaken its competitive edge in DeFi.

Centralization Risks and Regulatory Exposure
Operating a licensed instance with offchain legal structures and regulatory coordination exposes Aave DAO to centralized points of failure. Horizon’s reliance on issuer-enforced restrictions and compliance frameworks introduces dependencies on external entities—RWA issuers, regulators, and potentially Horizon itself. This contradicts Aave DAO’s decentralized governance model, as it cannot directly oversee these offchain components. If regulators target Horizon (e.g., for AML/KYC non-compliance), Aave DAO could face reputational damage or legal spillover, jeopardizing its neutrality. Furthermore, Horizon’s ability to configure risk parameters and enable/disable assets independently cedes significant control to a single entity, undermining the DAO’s sovereignty.

Financial Risks from Declining Profit Share
The proposed profit-sharing mechanism—starting at 50% in Year 1 and dropping to 10% by Year 4+—is heavily skewed against Aave DAO’s long-term interests. While the initial 50% share seems generous, the rapid decline suggests Horizon anticipates substantial profits as RWA adoption scales, yet Aave DAO’s cut shrinks dramatically. This structure fails to equitably reward the DAO for licensing its protocol or bearing the operational and reputational risks. Additionally, the 15% token allocation (if Horizon launches a token) is modest and split across multiple recipients, diluting its impact. The DAO’s treasury may see short-term gains, but the long-term revenue potential is disproportionately captured by Horizon, misaligning incentives.

GHO Stability and Overreliance on Institutional Borrowing
Horizon positions GHO as a “primary liquidity option” for institutional borrowing against RWAs, with a dedicated GHO Facilitator minting new GHO on demand. This aggressive push to scale GHO adoption risks destabilizing its peg and liquidity. Institutional borrowing is inherently volatile—large inflows and sudden withdrawals could flood or drain GHO supply, challenging its stability as a settlement asset. Unlike USDC, which benefits from broader market adoption, GHO’s reliance on a niche RWA market amplifies this risk. If institutions exit en masse (e.g., during a market downturn), Aave DAO could be left managing an oversupply of GHO, eroding trust in the stablecoin and the protocol.

Operational Burden and Resource Drain
Horizon expects Aave DAO and its service providers to oversee operational functionality, yet Horizon retains strategic independence. This arrangement places a disproportionate burden on the DAO to support a product it doesn’t fully control, diverting resources from core protocol development (e.g., Aave V4). The DAO lacks the infrastructure to manage offchain legalities or supervise Horizon’s compliance efforts, potentially straining its governance capacity. Worse, if Horizon mismanages risk parameters or fails to adapt to market conditions, Aave DAO could inherit the fallout—financial or otherwise—without adequate recourse.

Misalignment with DeFi’s Core Principles
DeFi thrives on transparency, composability, and resistance to centralized control. Horizon’s RWA product, with its permissioned workflows and institutional focus, drifts toward a TradFi-like model that prioritizes compliance over openness. This shift risks alienating Aave’s grassroots community, who value DeFi’s egalitarian ethos over catering to Wall Street. By tying Aave’s brand to a permissioned instance, the DAO may lose credibility among purists, weakening its position as a leader in decentralized finance.

Competitive and Reputational Risks
The RWA market is increasingly crowded, with players like MakerDAO, Centrifuge, and Ondo Finance already offering tokenized asset solutions. Horizon’s late entry, coupled with its permissioned approach, may struggle to differentiate itself, especially if institutions prefer more established or flexible platforms. If Horizon underperforms or encounters scandals (e.g., issuer fraud or regulatory crackdowns), Aave DAO’s association could tarnish its reputation, even if the DAO isn’t directly at fault. The promised benefits—GHO adoption and revenue—may not materialize if Horizon fails to capture significant market share.

My Final Thoughts
Horizon’s RWA proposal offers short-term allure but poses long-term threats to Aave DAO’s decentralization, financial stability, and community trust. The erosion of permissionless access, regulatory vulnerabilities, declining profit share, and operational burdens outweigh the speculative gains from institutional adoption. Aave DAO should reject this proposal and instead focus on enhancing its core protocol—doubling down on what makes it a DeFi leader rather than chasing TradFi’s shadow. If RWAs are to be integrated, and they should be a fully decentralized, community-driven approach would better align with Aave’s mission than Horizon’s top-down, permissioned experiment.

I delegate to @SaucyBlock and I have little doubt in how they will vote once they have read this Tempcheck…