As the Founder of Aave Labs, someone who gave inception for the project, and been relentlessly working on Aave and ETHLend since 2017 without a break, I find this proposal and discussion extremely important for the DAO to discuss and which potential should not be overlooked.
I want to first address the main important axiom, that few DAO members here already pointed out: the Aave DAO is currently lacking RWA-related revenue and is behind on RWAs.
Primary reason why RWAs have been overlooked as a revenue source by the Aave DAO is because as a decentralized DAO it would not be able to directly comply with legal, compliance and regulatory requirements of RWAs. This means someone as a centralized business needs to do this work. Secondly, there are service providers and also DAO members who have lack of conviction on RWAs but I would assume this mindset changes the more the RWA space keeps growing and Aave keeps loosing its positioning.
Aave Arc itself wasn’t fully focused on RWAs, it was a simply more permissioned version of Aave for institutional users. However, the experimentation did provide some good learnings for us and even with Aave Arc, our team had to do most of the offchain leg work on legal and compliance to make the market comply with the institutional requirements, in the current structure that the DAO is setup, this would not be possible to do by the DAO even today, neither it should in my opinion as it would centralize the DAO.
There are some confusions around what Horizon is, Horizon is not a protocol, its purely a centralized business with offchain and onchain components that is setup to grow RWAs and institutional adoption for DeFi. What this means in practice is that Horizon is creating centralized services to support RWAs and bringing them into DeFi. Its a business model that does not compete or exist in the Aave ecosystem, and will never exist because this is a centralized service business that the DAO itself cannot do technically and legally speaking, and thus is outside of the physical scope of the Aave DAO.
Given the nature of Horizon’s first product, using a lending and borrowing protocol would benefit its use-case. This is the reason Horizon is looking to acquire license for Aave V3 to accelerate the growth of the first product and in return ensuring that:
- There are no cost for the Aave DAO.
- Create new revenue stream that the DAO is missing now.
- Gives Aave DAO skin in the game in the most cryptonative way (as a token, given Aave DAO cannot hold equity).
- Does not dilute the AAVE token because Horizon business is something that the Aave DAO cannot do given the centralization aspects and the leg work needed on Horizon’s services and requirements that are purely offchain.
- Given the technical setup of the instance, even if the risk configuration is overseen by Horizon mainly in terms of asset listings and risk parameters, the actual operational configuration would be under the Aave DAO and the TVL would be listed under the Aave DAO, to be as “close to the metal” as possible given the regulatory and centralization constraints.
In overall this proposal simply creates the flywheel where as Horizon grows, Aave grows and earns more revenue. My bet is that in 5 years the revenue from Horizon would supersede the existing revenue from the all the existing Aave markets combined.
The most important part for us has been that the Aave DAO should not need to pay anything. Some DAO members comments propose to asking for a grant from the DAO in form of AAVE or GHO/USDC. However, we consider that given Horizon’s business model contains high failure risk as well, it would not be fair for the Aave DAO to pay for funding the initiative. We rather focus on boostrapping on our own and focusing on providing revenue for the DAO that is currently missing.
We also want to encourage all other service providers that have RWA product ideas to step up and propose to the DAO in cases where they are looking to acquire a license through the Friendly Fork Framework. At this point there should be multiple RWA businesses using Aave stack where its applicable. Today the number is 0, which means loss of revenue for the Aave DAO and a failure from growth perspective to position Aave as the frontrunner on RWAs in the DeFi space. Compared to other service providers we have a constructive attitude towards RWA businesses and support anyone who provides more revenue from RWAs into Aave DAO.
Horizon also followed the Friendly Fork Framework as a basis. Similarly to World Liberty Finance (a team which has a token) and naturally doubled the token portion to boost Aave DAO’s exposure.
Now what comes to the token, Horizon not having a token (which of course is Horizon’s decision and a possible path) creates couple of set backs that are worth addressing. First, the RWA businesses that Horizon creates would grow slower and the revenue to the Aave DAO from the Horizon instance would grow slower and would be much more limited. Second, it would leave out the option for the Aave DAO to have skin in Horizon given ERC-20s are what the DAO can hold, it cannot physically hold anything else technically or legally speaking.
Now what is really important to settle is the numbers itself for the DAO to be comfortable to see the initiative to move forward and unlock the revenue streams to the DAO. As mentioned before, the basis was the Friendly Fork Framework created by ACI (and voted by the DAO), if that Framework is not appealing (I personally think this framework was rushed and not properly peer-reviewed), we are open to find more suitable grounds. Secondly, Horizon’s products that could use Aave’s technology would be around 10%, this is because Aave provides mainly lending and borrowing infrastructure. Nevertheless, we are thinking additional ideas on how to use the Aave Protocol and GHO for centralized RWA businesses.
This discussion is really important given how big revenue opportunity Horizon and especially GHO can be in the RWA space. Currently GHO brings 10x more revenue than supply based stablecoins in Aave Protocol. Being able to utilize GHO for institutional products would scale the revenue beyond anything seen before.
One of the Aave Labs absolute commitment on everything we do is to grow GHO because the existing revenue model design of GHO brings 100% of the revenue back to the Aave DAO, independently where the revenue generated. This is the same reason we are integrating GHO as a gas token into Lens Chain.
I hope this clarifies what was already explained by the official Aave Labs account and we will make our best effort to reduce the doubt that the community might have.