AAVE's New Proposal Horizon Faces Backlash: Community Questions New Token and Profit-Sharing Mechanism

Original Title: "Aave Proposes New Plan Horizon to Launch RWA Product, Community Reacts Strongly, Founder Responds Urgently..."

Original Author: Weilin, PANews

Aave, which has always been highly praised by the community, recently sparked an unprecedented wave of community scrutiny.

Aave Labs recently launched a new plan called Horizon, aiming to develop a product that enables institutional adoption of decentralized finance through Real World Assets (RWA). This product would allow institutions to use tokenized money market funds (MMFs) as collateral to borrow at scale in RWA products denominated in USDC and GHO. Aave Labs hopes that through this product, it can further bridge the gap between traditional finance and DeFi.

However, in the days following the proposal's release, the community showed strong opposition to the Horizon plan, especially questioning the potential issuance of a new token and the profit distribution mechanism of Horizon.

Community Approval Awaited for "Temperature Check," Profit Distribution and New Token Allocation Become Controversial

According to the introduction in the Temperature Check proposal, Aave Labs stated that the demand for tokenized Real World Assets (RWA) is on the rise due to the benefits of tokenization in enhancing liquidity, reducing costs, and enabling programmable transactions around the clock—making traditional assets more easily accessible on-chain. Tokenized U.S. Treasuries have grown by 408% year on year, reaching $4 billion. In this process, institutional adoption is accelerating, and it is expected that the on-chain RWA scale in the next 10 years could reach $16 trillion.

To meet this growth demand, Horizon—a project initiated by Aave Labs—proposes to launch an RWA product to operate as a permissioned instance of the Aave protocol. Horizon will allow institutions to use tokenized money market funds (MMFs) as collateral to borrow at scale in USDC and GHO, unlocking stablecoin liquidity and expanding institutional access to DeFi.

Upon receiving approval from the Aave DAO, Horizon's RWA product will be launched as a permissioned instance of Aave V3 and will migrate to a customized Aave V4 deployment when possible. To support long-term alignment with the Aave DAO, Horizon will implement a structured profit-sharing mechanism, allocating 50% of revenue to the Aave DAO in the first year and driving ecosystem growth through strategic incentives.

According to Aave Labs' introduction, Horizon will have multiple key design components, including a licensed RWA token supply and redemption mechanism, permissionless USDC and GHO supply functionality, stablecoin borrowing for eligible users, an exclusive GHO facilitator, support for on-demand minting of GHO, a licensed liquidation process, integration with ERC-20 tokens on the RWA whitelist, and asset-level permission control managed by the RWA issuer.

Aave Labs stated that Horizon will implement a structured profit-sharing mechanism. Specifically, in the first year, 50% of the profits will be allocated to the Aave DAO, 30% in the second year, 15% in the third year, and 10% in the fourth year and beyond.

Additionally, if Horizon issues a token, 15% will be allocated to the Aave DAO as follows:

· 10% allocated to the Aave DAO treasury

· 3% reserved for Aave ecosystem incentives

· 2% distributed as airdrops to Staked Aave (stkAAVE) holders

In terms of operational support, the Aave DAO and its service providers will oversee the operational functions of the Horizon RWA product. Meanwhile, Horizon will retain independence, be responsible for configuring the instance, and guiding the product's strategic direction, including adapting to market changes, meeting institutional demands, and expanding to new networks.

Community Strongly Reacts: Only 10% Profit Sharing Ratio After 4 Years, Unclear New Token Use Case

However, the planned launch of Horizon has not received widespread community support but instead sparked intense opposition. EzR3aL, an independent representative of the Aave DAO, stated, "I think this tapering (profit-sharing ratio) is too aggressive and doesn't even follow the guidelines here. As we all agree, the first and second years might be market launch periods, so revenues won't be too high unless Aave Labs commits to providing liquidity support upfront, a commitment that if exists should be shared with the DAO for potential revenue estimations. Otherwise, I think real significant revenue may come in the third year and beyond, when the profit split ratio has already dwindled to 10%, which leaves me puzzled.

Guidelines mentioned by EzR3aL: Aave's profit-sharing: 20% monthly allocation; Aave DAO's token supply: 7% of the total supply allocated at TGE (Token Generation Event) or before deployment (if TGE has already occurred). If the token undergoes future rebase adjustments or inflation, the Aave DAO will receive additional tokens to prevent dilution.

EzR3aL states that next is the token distribution alignment, which is the part that confuses me the most. Is it (the new token) intended for separate governance? Is decentralized governance truly necessary for a permissioned market accessible only to eligible institutions? Is it to compensate Aave/Avara investors? Because if profit-sharing cannot be achieved through other means, VCs usually expect this arrangement. Is it a way for Aave Labs/Avara to generate profit? Because it might include a profit-sharing mechanism as one of its features?

Furthermore, he poses the question, how will the GHO minting process work? Will Aave's core instance first mint GHO and then lend to that instance, or can that instance directly mint GHO, thereby earning income from GHO borrowing? Lastly, "Aave DAO and its service providers will oversee the operational functionality of Horizon's RWA product." What does this mean? Under the V3 version, which parts of the instance will the DAO control? But once the V4 version is launched, will the DAO no longer have any relationship with it?

EzR3aL expresses more concern that the Aave token seems to have been abandoned, while another product entirely based on the Aave codebase (funded by multiple grant proposals by the DAO, with last year alone spending $12 million on just the V4 version) has been launched.

"It looks like AaveLabs and Avara are looking for ways to monetize this product, which is totally fine. I've supported all this since the Ethlend era. Bringing large institutions on-chain definitely requires a lot of resources. However, there could be better ways to do this that align with the community and DAO. For example, Horizon could pay fees in USDC and GHO and have the DAO retain these fees while possibly having some degree of governance over Horizon due to legal issues."

EzR3aL believes that by doing this, we can create a super DApp—an Aave and split it into two branches:

· Aave Market: Targeting on-chain DeFi ecosystem and on-chain national debt

· Horizon Market: Targeting institutions looking to fully compliantly and legally go on-chain

Meanwhile, other community members have also criticized the issuance of the new token. gregrwalsh says: I am not a fan of the proposed token issuance method. I don't understand why Aave's token needs to be diluted. If a new token is needed for some reason, it should maintain a 1:1 relationship with the Aave token, and holders should receive a proportional allocation. Additionally, Aave DAO's revenue share is also decreasing. This is clearly intended to operate as a new entity. I do not support this proposal. ParkerB123 says: In my opinion, there is no reason to issue a new token. If it is for governance purposes, then AAVE itself should be used as the governance token, after all, this is an initiative of AAVE Labs.

L1D Investor 0xLouisT further pointed out that launching a new token for a new business line is a scam. Has Amazon split AWS into a new company? Has Apple introduced a separate stock for AirPods? Clearly not. Investor support for a protocol is for both its current business and its future potential. Splitting a token, on the other hand, is the opposite—it's a huge red flag. The market will punish it. If we want cryptocurrency to be taken seriously, projects need to start operating like serious businesses.

Aave Founder Stani Responds: DAO Consensus Will Be Respected

After a few days of events unfolding, Aave's founder and CEO Stani Kulechov (@StaniKulechov) responded on March 16th, stating: The overall consensus of the Aave DAO is not interested in other tokens. This consensus will be respected, and the Aave DAO is a true DAO. Once a suitable method is found, RWA exploration will continue.

"Currently, it is evident that the DAO has reached a consensus that even if the token could accelerate Aave's revenue growth through liquidity mining, there will not be broad interest. Our team also has no intention to push the proposal, especially as this is the least exciting part of the temperature check, and I believe there are other ways to find how to guide liquidity and revenue flow through centralized businesses and products interested in using the Aave technology stack."

Stani further pointed out that RWA is a crucial revenue exposure for the Aave DAO, as mentioned earlier, should not be overlooked, so we will revise the proposal to consider feedback. We must remember that the Aave DAO is a true DAO, and any initial discussions and consensus reached must be respected, and our team has no interest in pushing anything that the DAO deems inappropriate. That's why smart money bets on $AAVE.

Crypto researcher @0xCoumarin stated that, in reality, AAVE's Horizon proposal could indeed be broken down into some finer sub-proposals. The DAO's demands are quite simple: 1. No new token; the money attracting liquidity can come from the AAVE DAO; 2. The protocol revenue share to the AAVE DAO needs to be increased. The trend of DeFi protocols moving towards institutions is significant, and the launch of Horizon can increase AAVE DAO revenue, more or less. Additionally, Horizon will support $GHO as the main borrowed stablecoin, which can expand the market size and revenue of AAVE's stablecoin business.

The community's concerns are also understandable. If new token issuance and decreasing revenue sharing ratio are allowed, the team will definitely focus more on building Horizon from a profit perspective. Horizon itself is also an institutional-oriented product and does not need the expectation of a new token to drive growth through point activities, so the analogy of $AERO to $VELO does not apply here.

The distribution details of the new token are also very strange. Only 15% will be allocated to the Aave DAO, 10% will go to the Aave DAO treasury, 3% is reserved for Aave ecosystem incentives, and 2% will be airdropped to Staked Aave (stkAAVE) holders. Therefore, it is reasonable to speculate that AAVE Labs will receive a significant amount of token-based revenue from the remaining 85%, which is also why the community thinks the team is launching a new project to make money. In summary, the launch of Horizon is a good thing; it all depends on how the community and the team can come to an agreement on the distribution of benefits.

Original Article Link