Aave Labs' Horizon Unveils Plan to Introduce Real-World Assets to DeFi Under Regulatory Framework
A groundbreaking new financial product initiative, Horizon, by Aave Labs aims to incorporate real-world assets (RWAs) into the decentralized finance (DeFi) realm with oversight from a regulatory framework.
This innovative step is poised to pave the way for fresh revenue streams for the Aave DAO, foster wider adoption of GHO, and solidify Aave's position as a key player in the expanding tokenized asset sector. Forecasts indicate that the volume of RWAs on blockchain networks could potentially soar to $16 trillion over the coming decade, underlining the immense potential of this move by Horizon.
Horizon's Proposal for RWA Product as Licensed Aave Protocol Instance
In a press release shared with BeInCrypto, Horizon, a subsidiary of Aave Labs, revealed its proposal to introduce an RWA product as a licensed facet of the Aave Protocol. The primary objective of this initiative is to enable institutions to utilize tokenized money market funds (MMFs) as collateral for borrowing stablecoins such as USDC and Aave's GHO.
This strategic move is anticipated to inject liquidity into stablecoins and broaden institutional access to DeFi, making the sector more accessible to regulated financial entities while also bolstering the Aave ecosystem.
The surge in demand for tokenized real-world assets has seen blockchain technology revolutionize liquidity provision, cost efficiencies, and programmable transactions, enhancing accessibility to traditional assets on-chain. Notably, tokenized US Treasuries have witnessed an astounding 408% year-over-year growth to hit $4 billion.
Horizon's RWA product, subject to endorsement by the Aave DAO, will kick off as a licensed iteration of Aave V3 initially, transitioning to a bespoke deployment of Aave V4 in due time. To ensure a sustained alignment with the Aave DAO's objectives, Horizon has proposed a structured revenue-sharing model, offering a 50% revenue share in the first year alongside strategic incentives for ecosystem expansion.
Moreover, in the event that Horizon launches its token, 15% of its supply will be funneled to the Aave DAO treasury and ecosystem incentives, with a portion also reserved for staked AAVE holders.
As RWAs continue to reshape the financial landscape, institutional players are increasingly recognizing their significance. Tokenized assets effectively bridge the gap between traditional finance (TradFi) and DeFi, opening up new avenues for investors to access yield-bearing assets from reputable entities like BlackRock (BUILD), Franklin Templeton, and Grayscale.
Empowering Institutions with Regulated Yet Permissionless Stablecoin Liquidity
Nonetheless, DeFi's open and permissionless nature poses regulatory hurdles, necessitating compliance frameworks to better accommodate large-scale institutional participation. The integration of RWAs into DeFi at scale remains a formidable challenge in the absence of tailored solutions.
Horizon seeks to bridge this gap by enabling institutions to tap into permissionless stablecoin liquidity while fulfilling the compliance and risk management standards set by asset issuers. Through this initiative, tokenized asset issuers can impose transfer restrictions and maintain control at the asset level, ensuring only qualified users can borrow USDC and GHO.
By proposing separate facilitators for GHO minting with RWA collateral, Horizon aims to provide predictable borrowing rates tailored for institutions, thereby bolstering the security, scalability, and institutional adoption of RWAs in the DeFi arena.
The institutional framework put in place by Aave Arc serves as a foundation for this initiative, with Horizon proposing a permissioned token supply to ensure a seamless integration marked by withdrawal mechanisms, stablecoin borrowing facilities for qualified users, and permissioned liquidation workflows.
While Aave's permissionless design remains a key strength, integrating RWAs calls for considerations beyond smart contract development. Building a licensed instance of Aave's protocol requires off-chain legal structuring, regulatory coordination, and active oversight, functions not independently managed by the Aave DAO.
Operationally, oversight of Horizon's RWA product functionality will fall under the purview of the Aave DAO and its service providers. Nonetheless, Horizon will preserve its independence in configuring the instance and steering its strategic trajectory.
Pending the approval of the Aave DAO, Horizon's RWA product stands at a crucial juncture, with further refinements and community consensus vital steps before progressing to a formal governance vote via Snapshot.
Should the community signal approval through the vote, the proposal would advance to the final governance stage for official endorsement.
According to BeInCrypto data, as of the time of writing, the AAVE price stands at $173.44, exhibiting a marginal 0.24% dip since the opening of Thursday's session.