Original Title: "The Key Puzzle for RWA On-Chain? AAVE Horizon Unlocks a Trillion-Dollar Market"
Original Author: dddd, Biteye
Horizon Platform Core Mechanism
Platform Architecture and Operation Principle
Horizon, as an independent lending market, is built on Aave Protocol v3.3, focusing on the deep integration of RWA. The platform allows qualified users to use tokenized RWA (such as money market funds, U.S. Treasury bonds, index funds, or individual stocks) as collateral for over-collateralized lending, thereby transforming traditional financial assets into active sources of DeFi liquidity. As of now, the total on-chain value of RWA has exceeded $26 billion, marking the rapid development of institutional adoption of tokenization.
The platform's design revolves around two user groups: qualified institutional investors can supply RWA collateral and borrow stablecoins, while anyone can supply stablecoins to earn yields from institutional borrowers. This dual structure creates a unique ecosystem that achieves a seamless connection between traditional assets and decentralized finance.
Core Issues Addressed
Currently, tokenized real-world assets face a fundamental dilemma. Although these assets provide institutions with exposure to traditional assets on-chain, they are largely isolated from the DeFi ecosystem, leading to capital inefficiency and being effectively excluded from on-chain capital markets as collateral.
Horizon changes this situation by enabling RWA to be used directly as collateral in DeFi. Institutional investors can unlock stablecoin liquidity without needing to sell or redeem tokenized assets, transforming RWA into productive foundational components of on-chain finance.
Detailed Lending Process
Borrowing Mechanism: Financial institutions or individuals can supply tokenized RWA (such as assets from Converge or xStocks) to the Horizon market. When RWA tokens are deposited as collateral, Horizon issues a non-transferable aToken to represent that collateral position. Users can borrow stablecoins based on a set percentage of their collateral value, with each type of collateral having its own loan-to-value (LTV) parameters.
Supported Assets: RWA qualified users can borrow various assets, including Ripple's stablecoin (RLUSD), Aave's decentralized stablecoin (GHO), common stablecoins like USDC, and other assets such as USDT or DAI. These stablecoins have multiple use cases in the DeFi ecosystem, including earning yields (APY) in lending markets, decentralized exchanges (DEX), and other protocols, significantly enhancing expected returns.
Lending Process: Providing stablecoins to Horizon does not require any permission restrictions. Stablecoin liquidity providers (LP) can earn yields by lending out assets, and users provide their chosen stablecoins to the market, receiving aToken that represents their deposit, which can earn yields and be withdrawn at any time.
Strategic Partnerships and Ecosystem Support
The success of Horizon relies on a strong network of partners, including institutions such as Circle, Superstate, Centrifuge, Ant Digital Technologies, Chainlink, Ethena, KAIO, OpenEden, Ripple, Securitize, VanEck, and WisdomTree.
During the launch phase, Horizon supports various high-quality RWA collateral options. Circle's USYC offers qualified investors the opportunity to earn dollar yields by diversifying investments in high-quality, short-term U.S. Treasury bonds. Superstate's USTB and USCC provide yield opportunities for qualified investors through short-term U.S. government securities and cryptocurrency arbitrage strategies, respectively. Centrifuge's JRTSY and JAAA offer yield opportunities through tokenized exposure to U.S. Treasury bonds and AAA-rated mortgage-backed securities.
Converge serves as the settlement layer between traditional finance and digital dollars, supported by Wormhole and Chainlink; xStocks allows for the tokenization of S&P 500 index funds, individual stocks like Apple/Nvidia, and U.S. Treasury bonds, supporting operations on Solana and other chains. These assets are not just 1:1 tokenized but also provide ownership and composability advantages in DeFi, allowing users to lend, provide liquidity (LP), swap, and more.
Risk Management and Technological Innovation
Comprehensive Risk Framework
As the primary risk provider for Aave, Chaos Labs collaborates with Aave Labs to build Horizon's comprehensive risk infrastructure, ensuring institutional-level reliability and operational scale. Unlike crypto-native assets, RWA needs to handle complex situations such as market closures, custody coordination, and redemption risks.
Chaos Risk Oracles are integrated into Horizon's governance and execution layers, capable of automatically adjusting parameters such as interest rates, loan-to-value (LTV), and liquidation thresholds based on real-time market conditions. These oracles continuously monitor utilization, volatility, and redemption risks, cross-referencing NAV with external benchmarks (such as Bloomberg indices and Treasury yield curves) and enforcing dynamic buffers and time-based liquidation logic during market closures.
The risk framework includes: agent simulations to model user behavior, protocol stress, and extreme redemption scenarios; real-time dashboards and alerts tracking collateral composition, NAV updates, market access windows, and lock-up periods; risk scenario modeling predicting asset performance under stress; and custom liquidation mechanisms considering issuer constraints, custody delays, and access for qualified liquidators.
Technological Safeguards
Horizon employs multiple protective measures to ensure platform security. Smart contracts execute deterministic operations without matching logic, order books, or quoting mechanisms. The non-custodial architecture means users retain control, and Aave Labs cannot move funds. aTokens are designed to be non-transferable to respect the transfer restrictions of the issuer.
The platform also utilizes Chainlink's SmartData technology, initially deploying NAVLink to provide accurate net asset values for tokenized RWA collateral, enabling real-time, over-collateralized stablecoin lending within a compliant DeFi framework. Pricing accuracy is ensured by RedStone, while risk profiles are overseen by dedicated entities.
Revolutionary Significance for Traditional Finance (TradFi)
Traditional financial institutions are often confined to "sandbox" environments, unable to fully leverage the advantages of DeFi, such as top-tier risk-adjusted opportunities and composability. Horizon changes this status quo, providing a gateway for TradFi to enter DeFi.
Enhancing Asset Liquidity and Unlocking Opportunities
Traditional institutional assets (such as Treasury bonds or stock funds) are typically static with limited liquidity. Horizon allows these institutions to supply tokenized RWA to the Aave platform and then lend these assets in exchange for stablecoins without needing to sell the assets. Institutions can lend tokenized RWA to borrow stablecoins, tapping into the $167 billion DeFi market, transforming traditional assets from static holdings into active liquidity.
After borrowing stablecoins, users can earn higher APY across multiple protocols, enjoying yields far exceeding those of traditional bank deposits or bonds. This model provides TradFi with a more efficient way to utilize capital, reducing intermediaries (such as bank wire transfers and brokers) and lowering costs.
Bridging Trillions of Dollars Market
With players like BlackRock entering, Horizon bridges TradFi and DeFi, driving the tokenization of trillions of dollars in markets. The platform facilitates easier adoption of TradFi through institutional-grade design (including risk management provided by Chaos Labs) without concerns about compliance or security issues.
Profound Impact on Decentralized Finance (DeFi)
DeFi faces challenges such as access difficulties, regulatory issues, liquidity expansion, and reputational challenges (due to hacks and exploits). Horizon helps address these challenges, promoting the maturity and mainstream adoption of DeFi.
Liquidity Expansion and Ecosystem Maturity
Through regulatory adaptation, more accessible new primitives, and better detection methods, DeFi is maturing. Horizon enriches the asset pool of DeFi by introducing RWA, allowing users to deposit RWA to borrow stablecoins, thereby increasing overall TVL. Currently, Aave's TVL on Ethereum has reached $59 billion, and the launch of Horizon further enhances this figure.
The platform enhances the overall liquidity of DeFi and improves its reputation, attracting more traditional participants through institutional-grade risk management. It supports multiple use cases for stablecoins, improving the capital efficiency of DeFi and drawing more institutional funds, potentially addressing liquidity fragmentation issues.
Exploring Innovative Design Space
Aave leads in DeFi with its credibility and institutional approach, and Horizon is its natural extension, driving the deep integration of RWA with DeFi. Unlike traditional DeFi lending, Horizon is optimized for the unique characteristics of RWA, such as RWA adhering to restricted schedules (like daily or weekly NAV updates, market closure periods), which require the protocol to handle non-24/7 liquidity.
Future Outlook and Market Significance
Horizon represents a new design space for RWA in DeFi, expected to expand to more chains and asset classes. Chaos Labs' risk infrastructure ensures its reliable scaling, while partners like Converge and xStocks will drive further innovation.
Overall, Horizon marks the convergence of TradFi and DeFi, potentially unlocking trillions of dollars in opportunities and enhancing protocol security through automation and real-time monitoring. For institutional investors, Horizon offers unprecedented capital efficiency; for DeFi users, Horizon opens new avenues to engage with institutional-grade borrowers, creating a true win-win situation and driving the entire ecosystem towards a more mature and inclusive direction.
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