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Original title: "The key puzzle of RWA on the chain? AAVE Horizon Unlocks Trillions of Markets Original author: dddd, Biteye Core mechanics of the Horizon platform Platform architecture and operating principle As an independent lending marketplace, Horizon is built on Aave Protocol v3.3 and focuses on deep integration of RWAs. The platform allows qualified users to use tokenized RWAs, such as money market funds, U.S. Treasuries, index funds, or individual stocks, as collateral for overcollateralized lending, thereby transforming traditional financial assets into active sources of DeFi liquidity. As of now, the total value of on-chain RWAs has exceeded $26 billion, marking a rapid evolution in institutional adoption of tokenization. The platform is designed around two groups of users: qualified institutional investors can supply RWA collateral and borrow stablecoins, while anyone can supply stablecoins to earn yield from institutional borrowers. This dual structure creates a unique ecosystem that seamlessly integrates traditional assets with decentralized finance. The core problem solved Currently, tokenized real-world assets face a fundamental dilemma. Although these assets provide institutions with on-chain traditional asset exposure, they are largely isolated from the DeFi ecosystem, resulting in capital inefficiencies that cannot be used as collateral and effectively excluded from the on-chain capital market. Horizon is changing this by enabling RWAs to be used as collateral directly in DeFi. Institutional investors can unlock stablecoin liquidity without the need to sell or redeem tokenized assets, turning RWAs into productive foundational components of on-chain finance. Detailed explanation of the lending process Borrowing Mechanism: Financial institutions or individuals can supply tokenized RWAs, such as assets from Converge or xStocks, to the Horizon Marketplace. 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 collateral type having its own loan-to-value (LTV) parameters. Supported Assets: RWA eligible users can borrow a variety of assets, including Ripple's stablecoin (RLUSD), Aave's decentralized stablecoin (GHO), common stablecoins like USDC, and other assets like USDT or DAI. These stablecoins have various use cases in the DeFi ecosystem, including earning yields (APYs) in lending markets, decentralized exchanges (DEXs), and other protocols, significantly enhancing expected returns. Lending process: No permission restrictions are required to provide stablecoins to Horizon. Stablecoin liquidity providers (LPs) can earn yield by lending assets, and users offer their chosen stablecoin to the market and receive an aToken on behalf of their deposit, which can earn yield and be withdrawn at any time. Strategic Partnerships and Ecological Support Horizon's success is inseparable from a strong partner network, encompassing institutions such as Circle, Superstate, Centrifuge, Ant Digital Technologies, Chainlink, Ethena, KAIO, OpenEden, Ripple, Securitize, VanEck, and WisdomTree. During the launch phase, Horizon supports a wide range of high-quality RWA collateral options. Circle's USYC offers accredited investors the opportunity to earn dollar yields by investing in a diversified portfolio of high-quality, short-term U.S. Treasuries. Superstate's USTB and USCC offer yield opportunities to accredited investors through short-term U.S. government securities and crypto arbitrage strategies, respectively. Centrifuge's JRTSY and JAAA offer yield opportunities to U.S. Treasuries and AAA-rated mortgage certificates through tokenized exposure. Converge serves as the settlement layer for traditional finance and digital dollars, supported by Wormhole and Chainlink; xStocks allows tokenization of S&P 500 index funds, individual stocks like Apple/Nvidia, and U.S. Treasuries, supporting operations on Solana and other chains. These assets are not just 1:1 tokenization, but also provide the ownership and composability advantages of DeFi, allowing users to lend, provide liquidity (LP), swap, and more. Risk management and technological innovation Comprehensive risk framework As Aave's primary risk provider, Chaos Labs partnered with Aave Labs to build Horizon's comprehensive risk infrastructure, ensuring institutional-grade reliability and operational scale. Unlike crypto-native assets, RWAs need to deal with complex situations such as market closures, custody coordination, and redemption risks. Chaos Risk Oracles are integrated into Horizon's governance and enforcement layers, enabling automatic adjustment of parameters such as interest rates, loan-to-value ratios (LTV), and liquidation thresholds based on real-time market conditions. These oracles continuously monitor utilization, volatility, and redemption risk, cross-validate NAV against external benchmarks like the Bloomberg index and Treasury yield curve, and enforce dynamic buffers and time-based liquidation logic during market closures. The risk framework includes: proxy simulation to model user behavior, protocol pressure, and extreme redemption scenarios; Real-time dashboards and alerts track collateral composition, NAV updates, market access windows, and lock-up periods; Risk scenario modeling predicts the performance of assets under pressure; Custom clearing mechanisms take into account issuer constraints, custody delays, and qualified liquidator access. Technical security guarantees Horizon uses multiple protections to keep the platform secure. Smart contracts perform deterministic operations with no matching logic, order books, or quoting mechanisms. The non-custodial architecture means that users retain control, and Aave Labs cannot move funds. aTokens are designed to be non-transferable to respect the issuer's transfer restrictions. The platform also employs Chainlink's SmartData technology, first deploying NAVLink to provide accurate net asset value for tokenized RWA collateral and enable 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 a "sandbox" environment and cannot fully utilize the advantages of DeFi, such as top risk adjustment opportunities and composability. Horizon changes this by providing TradFi with a gateway into DeFi. Asset liquidity enhancement and opportunity unlocking Traditional institutional assets, such as Treasuries or equity funds, are often static and have limited liquidity. Horizon allows these institutions to supply tokenized RWAs to the Aave platform and then lend these assets in exchange for stablecoins without having to sell the assets. Institutions can lend tokenized RWAs to borrow stablecoins, access DeFi's $167 billion market, and transform traditional assets from static holdings to active liquidity. Users can earn higher APYs across multiple protocols after borrowing stablecoins, enjoying yields much higher than traditional bank deposits or bonds. This model provides TradFi with a more efficient way to utilize capital, reduce intermediaries (such as bank wire transfers and brokers), and reduce costs. Bridging trillions of dollar markets With players like BlackRock entering, Horizon bridges TradFi and DeFi, driving tokenization in a trillion-dollar market. The platform makes TradFi easier to adopt through institutional-grade design, including risk management provided by Chaos Labs, without worrying about compliance or security concerns. Profound impact on decentralized finance (DeFi). DeFi faces issues such as difficulty in access, regulatory issues, liquidity expansion, and reputational challenges (due to hacking and exploitation). Horizon helps address these challenges, driving maturity and mainstream adoption of DeFi. Liquidity expansion and ecological maturity DeFi is maturing with regulatory adaptation, new primitives that are more accessible, and better detection methods. Horizon enriches DeFi's asset pool by introducing RWAs, where users can deposit RWAs to borrow stablecoins, increasing overall TVL. Aave's TVL on Ethereum has now reached $59 billion, and the launch of Horizon has further boosted this figure. The platform enhances the overall liquidity of DeFi and improves its reputation, attracting more traditional players through institutional-grade risk management. It supports multiple use cases for stablecoins, improves capital efficiency in DeFi, and attracts more institutional inflows, potentially addressing liquidity fragmentation. The development of innovative design space Aave leads the way in DeFi with its credibility and institutionalized approach, and Horizon is a natural extension of it, driving the deep integration of RWAs with DeFi. Unlike traditional DeFi lending, Horizon is optimized for the unique characteristics of RWAs, such as RWAs following a restricted schedule (e.g., 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 RWAs in DeFi and is expected to expand to more chains and asset classes. Chaos Labs' risky infrastructure ensures its reliable scaling, while partners like Converge and xStocks will drive more 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 up new avenues for reaching institutional-grade borrowers, creating a true win-win situation that propels the entire ecosystem towards a more mature and inclusive direction. Original link