Aave proposes Horizon to enhance institutional adoption of DeFi

Leading DeFi protocol Aave has announced plans to launch Horizon, a new initiative focused on building institutional DeFi products. The protocol founder, Stani Kulechov, announced this on X, noting that this initiative will take decentralized finance to the next level.

According to him, solutions that integrate real-world assets (RWA) into DeFi are needed to bring institutions on-chain. Horizon plans to achieve this by incorporating the best of Aave technology stack to build products for institutions.

The official post from Aave Labs also confirmed the initiative, noting that the first Horizon product will allow tokenized money market funds (MMFs) to serve as collateral for institutions when they want to borrow stablecoins such as USDC and GHO on-chain.

The post reads:

“By aligning with institutional standards while preserving DeFi’s core efficiencies, Horizon unlocks a compliant, scalable, and accessible pathway for institutions and tokenization platforms to engage in decentralized finance.”

Meanwhile,  Kulechov explained that the inspiration behind Horizon is the growth of the RWA sector in recent years, with on-chain US treasuries alone accounting for around $4 billion in total value locked (TVL).

Despite this growth, Aave Labs noted that there are still several structural gaps because DeFi’s open architecture is not suitable for institutional needs. Thus, Horizon is about closing these gaps by building solutions specifically for institutions. The firm is now calling on institutions such as liquidity providers and RWA issuers to collaborate.

Unsurprisingly, some users have asked why there is a need for a new protocol when Aave Arc already serves institutions. However, Kulechov explained that Horizon offers permissionless liquidity with permissioned collateral, while Arc offers permissioned liquidity and collateral. He added that Horizon builds on lessons from Arc.

Aave Labs proposes licensing Aave Instance for Horizon

Following the announcement, Aave Labs has submitted a proposal to the Aave DAO to license an Aave instance for the new platform. Kulechov explained that this licensed instance will be the foundation for all projects under the Horizon initiative.

According to the proposal, the Horizon RWA product will launch using an instance of Aave V3 before transitioning to Aave V4 when the latest version is available.

Key features of the proposed Horizon protocol include permissionless USDC and GHO stablecoins; eligible users can borrow stablecoins; integration of approved RWA ERC-20 tokens; RWA issuers having asset-level permission management; etc.

In return for licensing an Aave instance, Horizon wants to share profits with Aave DAO. The profit-sharing arrangement will see Aave DAO get 50% in the first year with a reduction over the next three years until it gets to 10% from the fourth year onward. There is also a provision that if Horizon launches a token, Aave DAO will get 15% of the allocation.

The proposal claims that Horizon will benefit the Aave ecosystem in several ways by boosting GHO stablecoin adoption, generating more revenue for the DAO, and making Aave the preferred DeFi platform for institutions.

Community members express concerns about Horizon diluting AAVE value

Meanwhile, positive reactions have trailed the announcement from Kulechov, with many praising the initiative. However, there are also concerns from Aave DAO community members about how the idea of creating a new token for Horizon could dilute AAVE token value.

Several users within the community have said they will vote against the proposal because of the plan to introduce a token. One user, Gregrwalsh, said the idea of a new token and declining revenue-sharing percentage make the proposal questionable.

He wrote:

“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.”

Several other users share this view with some even saying they had to create an account just to express their view. However, Kulechov had explained on X that Horizon will not dilute Aave value and is, in fact, the “highest revenue stream proposal from all licensed instances.”

Nevertheless, the strong opposition to the Horizon proposal in its current state means it is unlikely to pass unless Aave Labs changes key details. Several members of the popular Aave service provider and delegator Aave Chan Initiative (ACI), including its founder Marc Zeller, have also opposed the idea. Zeller reiterated that the ACI will not support the TEMP CHECK and that AAVE is the only token in the ecosystem.

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