Hi friend!

I’m happy to tell you that you, like many other people are misinformed.

Original fiction is absolutely allowed on Archive of Our Own.

There is in fact, a canonical works tag for it that you can see right here.

There are more than 200k works in the original works tag on AO3!

The only caveat for posting original fiction to AO3 is, as you suggest, no monetization, and also that they are in some way “fannish”. But whether a work is fannish or not is up to you to decide.

A retelling of a public domain story would absolutely be welcome on AO3 and in fact there are many of them already!