On November 22, Rhythm BlockBeats invited Richard Liu, co-founder of Huma Finance, and Jason, founder of Folius Ventures, to discuss the topic of 'Decoding Huma and PayFi: The Next Engine in the RWA Track'.
BlockBeats: Welcome both of you. First, could you please introduce yourselves briefly?
Richard Liu: I am very pleased to be online and share with everyone. I am Richard Liu, co-founder of Huma Finance. I previously worked in Web2 for a long time, primarily at Google. Later, I started my own AI company, which was acquired by Facebook.
Subsequently, I became the CTO of Fintech giant Earnin, which not only deepened my experience in the payment and lending industry but also established a deep friendship with the company's CPO and risk control head. We also realized that many fintech and payment companies face numerous pain points in obtaining working capital. Two and a half years ago, the three of us decided to co-found Huma Finance to address these pain points in working capital for payment companies using blockchain technology. In this process, we saw that blockchain technology could effectively solve many pain points faced by payment companies. This is the reason we decided to start Huma Finance, and the project has been underway for about two and a half years now.
Thanks to the support from various parties, our development speed is also relatively fast. Especially after we acquired Arf Finance this year, we are considered one of the larger projects in the PayFi track. Therefore, when Solana promotes PayFi, we naturally become their first choice, serving as an important partner to jointly promote the formation and rapid development of the PayFi track.
Jason: Hello everyone, I am Jason from Folius Ventures. Our company has been established since September 2021, and it has been three years now. We are a mixed investment institution focusing on both primary and secondary markets, especially in the primary market. Our main investments are concentrated in the Asia-Pacific region, particularly among Chinese entrepreneurs. Previously, we preferred to deploy and invest more in the ToC track. Huma Finance is one of the few investments we have in the payment and payment finance track.
BlockBeats: Could you please share your understanding of PayFi? How would you describe the connotation and extension of PayFi?
Richard Liu: Before discussing PayFi, let me first talk about Payment Finance. Payment finance is about bringing future money to use today. For companies, it means advancing future receivables; for individuals, it might be advancing future salary or other forms of income, allowing you to enjoy the value brought by that future money in advance. The value of this for both companies and individuals is very clear, and this market is already very large today.
For example, in the credit card market, when I use a credit card today, I actually pay after 30 days, but the payment company may pay the merchant within two or three days. This is a huge market. Another example is various cross-border trade finance, which is an important core point in both Hong Kong and Singapore, with a global market size reaching 10 trillion. Additionally, there is the pre-funding of cross-border payments, which often requires advance funding, and this pre-funding market is 4 trillion. In total, the existing market size is at least 30 trillion.
PayFi is utilizing blockchain technology to enhance the efficiency of Payment Finance. By using blockchain technology, we can further optimize financial payment methods, create new opportunities, and solve problems that traditional financial methods cannot address. For example, if I pay a Chinese merchant from Amazon in Europe, it takes at least two days to arrive. But through these technologies, it could arrive on the same day. These are not possible with current technologies, but PayFi can achieve that.
PayFi is using blockchain technology to optimize various financial financing. The essence of PayFi is the practical uses I mentioned. For PayFi to make substantial progress, it must not only do well itself but also support various functional applications, such as credit card payments and pre-funding for cross-border payments. To truly excel at PayFi, significant infrastructure support is needed, whether it is underlying public chains or enhancements in stablecoins, compliance, or custodial aspects.
This is why we launched the PayFi Stack. If you haven't heard of this concept, you can visit our official website, where you can find a description of the PayFi Stack. This is our understanding of the entire PayFi ecosystem.
The momentum behind the formation of PayFi was actually due to Jason's special contribution. In April of this year, Lily Liu, the chair of the Solana Foundation, gave a speech mentioning the term 'PayFi', and the next day I met her. Jason brought me to a special dinner gathering, where Lily Liu was also present. Lily shared her thoughts with me, and I explained that we have been engaged in payment finance and have reached a considerable scale. Lily Liu stated, 'This is the best use case for payment finance I have ever seen.' In fact, it was Jason who connected us, and Solana was willing to promote it, combined with our project already having product landing, leading to our cooperation.
Jason: The term PayFi did not exist last year. Its birth is actually defined by Huma Finance along with the entire industry chain. To summarize, for Richard's concept of cross-time, cross-region, ultra-short account periods, and possibly cross-national stablecoin payment exchanges, as well as the short-term borrowing demands derived from it, there are many key points where the cost of transfers between point-to-point can be reduced. After regulation and infrastructure are connected, utilizing blockchain for payments could lower costs by 5-10 times, presenting a substantial opportunity, and I look forward to Huma Finance making great strides.
BlockBeats: Let's return to Huma Finance itself. What are Huma Finance's advantages and positioning?
Richard Liu: If you want to engage in payment finance, you need a very strong financial engine. The Huma Protocol itself serves this purpose. However, having only a protocol is not enough, as many protocols in the Web3 space do not generate profits, and building a sustainable business model is very challenging. We understand that many companies in Web2 have a powerful platform, such as Google, but the actual profit comes from its applications, such as the Google Search App, YouTube App, or third-party apps.
So we realized early on that we needed to provide an app on a strong platform, whether that app was our own or a third-party one. Later, we decided to acquire a relatively strong application, Arf, so we formed a combination of platform and application. It’s like building a large residential complex and opening a very good supermarket inside to attract customers and other businesses; this is our strategy. Our platform has immense potential, and with the support of Arf, we expect the project to be profitable in the first half of next year, giving us many advantages compared to other Web3 projects.
Secondly, our on-chain transaction volume has exceeded 2 billion USD, which is rare among RWA projects. From an investor's perspective, many RWA projects have only 1 to 2 investors over a million, while among our investors, there are at least 20 at the million level, with wallet addresses approaching 1000. In RWA projects, both the project itself and the investor's level are among the top in the track. Solana focuses on promoting the PayFi track, and we are closely cooperating with Solana, having successfully held the PayFi summit in Singapore in September, and we plan to jointly host 5 PayFi summits with Solana next year. Throughout the entire ecosystem, public chains, Solana, and Circle have provided us with strong support. Additionally, our investors are also very powerful, primarily from the United States and Europe, with very few Asian investors, only two, Folius Ventures and HashKey. We are very grateful for their support of the entire ecosystem.
Jason: I can briefly introduce how I met Richard and how we got involved, as well as why I have always been very optimistic about Richard and the project he is talking about.
I met Richard while I was conducting background checks for another company. Richard had worked for the company I wanted to invest in, so I reached out to him, and we clicked immediately. At that time, Richard had just begun to conduct in-depth research on Web3. After getting to know each other, we had multiple discussions about DeFi and the entire Web3, during which he gradually solidified his idea of starting a business in the Web3 field. Throughout our discussions, we initially determined to enter the DeFi track, then switched directions, ultimately choosing the current PayFi and cross-border payment niche. Our recognition of what he and his team are doing has been continuously increasing.
Why do we have confidence in Huma Finance? First, Richard and the team have a very strong background in Silicon Valley, and Richard and another co-founder have excellent cognition and execution abilities. They have made significant contributions to the companies they previously worked for, both in execution and strategy. Working in payment finance or such a niche track involves a process from 0 to 100. From 0 to 1, you need to find components that meet the track's demands, and from 1 to 100, the ultimate goal is to compete with traditional Web2 companies. Finding pain points and making the project even better than the currently leading Web2 companies requires a wide network and cognitive ability, all of which are essential.
The first impression this team gave me is that they are both worldly and grounded. When they first learned about this industry, they did not look down on it or have any prejudices; they were very careful and humble in learning, deeply researching and studying the industry. Additionally, their past expertise in payments, corporate management skills, and experience in dealing with large traditional ToB companies ensure they can steadily advance the project. The traditional Web2 team has at least a basic ethical standard. I believe they can ensure the rights and interests of shareholders, investors, and token holders. 95% of Web3 entrepreneurs disappear after they earn money post-token issuance. Their team is very different from these entrepreneurs, and overall, we highly recognize Richard's team's capabilities.
BlockBeats: We have a preliminary understanding of Huma Finance; let's discuss Huma's specific business. Huma recently acquired the cross-border payment company Arf. What is the nature of the cooperation between Huma and Arf, and how do both exert efforts in the PayFi track?
Richard Liu: Huma Finance, as a financial platform, primarily provides services for investors and borrowers, allowing investors to supply funds and earn returns while permitting borrowers to borrow and repay. Arf is different from a financial platform like Huma; its main business is to provide advance funding services for cross-border payments. For example, when a user needs to remit money from Singapore or Hong Kong to South Africa, using the traditional Swift method is both time-consuming and expensive. Therefore, many people choose to transfer through various remittance companies, such as Western Union, which can complete the transaction on the same day. These remittance companies have a local partner in South Africa and do significant funding there, with 20%-25% of the company's monthly turnover coming from funding in local companies. So when a customer wants to remit money, they notify the local partner to settle using the funding money. However, this method is burdensome for these remittance companies because they may need to deal with many countries around the world, requiring different currencies to use significant funds for funding, and often they are unable to provide the funding.
Arf can accomplish this by abstracting funding services and using stablecoins to provide funding services for payment companies. A user finds a payment company in Hong Kong and proposes to remit 1 million dollars to South Africa. Arf ensures that the user’s 1 million has been deposited into a regulated account, and no one can touch the funds before settlement. Before settlement, we have already conducted due diligence on that company to confirm its reliability. The payment company quickly transfers the 1 million to us, and we send an equivalent of 1 million USDC to the partner in South Africa, who is responsible for completing the inflow and outflow operations and ultimately transferring the funds to the user. After completing the above operations, we notify the Hong Kong remittance company that the transaction has been completed. The remittance company in Hong Kong can confirm the transaction completion and then access the 1 million stored in the regulated account. Throughout this process, we lend stablecoins and return stablecoins; we do not intervene in the inflow and outflow operations.
Overall, our service objects are licensed financial institutions, most of which are in developed countries like the US, UK, France, and Singapore. Before lending, the funds are kept in a regulated account, and under this condition, we will engage in lending, which keeps our risks very low. Additionally, the entire lending cycle is very short, ranging from 1 to 6 days, allowing everyone to see the flow of these funds on-chain. The capital turnover is very fast, resulting in a transaction volume of 2 billion USD and zero bad debts.
Huma Finance acquired Arf, which you can think of as a DeFi platform where RWA assets are placed on the platform, allowing investors to participate and earn returns. In the entire cooperative relationship, Huma is responsible for bringing in funds, while Arf is responsible for using those funds in actual business. Arf's annual return is already close to 20%, and we can provide investors with returns of over ten percent; this is the relationship between the two.
BlockBeats: What are the main sources of Huma's revenue? Can you also elaborate on how the HUMA token captures value in the ecosystem?
Richard Liu: Huma's profit model has several aspects. First, as a platform, we charge platform fees. Regardless of the revenue generated by Arf or other projects on the platform, we will charge a platform fee. Secondly, Arf is our first First-Party App, but it will not be the only one; Arf can currently bring us relatively high returns. In the future, we will also incubate other First-Party APPs, which are FinTech that can yield high returns. Thirdly, there are many other applications on our platform, as we will implement strict risk control and have in-depth understanding of their underlying situations. We can participate as LP in these protocols; we may take part in some higher-risk projects, which in Chinese we refer to as 'subordinate', because the vast majority of less informed users may opt for priority, while we know this project well and are fully capable of undertaking 'subordinate' roles to achieve higher returns.
In summary, our profit model mainly includes platform fees, which are a common way to profit for all RWA platforms. Our own First-Party APP, which may bring revenue far exceeding that of the platform. When our funds reach a certain scale, we can participate in platform projects as LP and bring higher returns. The vast majority of these returns will be converted into returns for investors. Even in a poor market environment, we believe we can provide returns about 7% to 8% higher than the market average.
Jason: What is the current and future shareholding of Huma Finance, and how is the distribution for token investors?
Richard Liu: All our investors receive equity and token warrants. In the future, we plan to issue tokens, so the exit of our investors is more through this token channel. How does Huma's token capture value in the ecosystem? I believe there are two points: the project itself can be profitable, which provides a lot of freedom to bring value to token holders, whether it is creating a VE model that allows stakers to receive more rewards or through token buybacks.
Actually, some people have questioned us, believing that our project has so many advantages and should have more innovations in tokens, hoping we can create a unique coin. I have taken this statement to heart. Currently, I am discussing with Jason and others, besides the VE model and deflationary model, we may introduce some new elements to innovate on the token.
Jason: The LP's USDC placed on the Huma platform is actually withdrawn from the pool, then goes through a round of rolling, and then returns. Can this be understood this way?
Richard Liu: It is indeed possible. The LP's early yields will be relatively high, and currently, our own projects can generate returns. In the future, we will integrate with other projects, providing even higher returns for everyone.
Jason: Currently, putting USDC into Huma as an LP, the staked USDC is non-transferable, so temporarily cannot enjoy the staking yields, such as the potential yields on Pendle or AAVE, which is quite curious.
Richard Liu: Currently, Huma and Arf can generate a solid return of over ten percent, which is unrelated to the token. Additionally, we will also issue tokens and have a points reward mechanism. Since we have established a strong infrastructure, the next step is naturally to integrate with platforms like Pendle. Due to our high yield, I believe many projects will also be willing to integrate with us, allowing participants in our LP to obtain more returns.
BlockBeats: How does Huma Finance design its revenue model in the PayFi sector to make it more sustainable and resilient to market fluctuations?
Richard Liu: When we founded this company, we believed that with our background and the support of so many excellent investors, we were confident that we could create a pretty good project. From the beginning, we set clear goals, establishing a sustainable, cross-cycle project. If a project can only last one cycle, it's just a fleeting project, and that's not what we want to do.
The returns we bring to users today are achieved by putting capital into real-life scenarios, and the returns in reality are tangible. These returns are very stable and can withstand market fluctuations. Typically, when we develop business with clients, the number of clients generally increases rather than decreases. With the increase in clients, returns will also continue to rise. So for me, this is a sustainable business.
From an investment perspective, if we can continue to provide good returns, investors will continue to support us. Especially when the cryptocurrency market enters a downturn, a lot of money doesn't know where to go; if our project can still provide relatively high returns during that time, I believe the vast majority of funds will flow to us. During a bull market, we strive to obtain funds from traditional funds, but in a bear market, I believe a lot of cryptocurrency funds will also flow to us.
Jason: Through this cross-border payment method, users do not bear point-to-point risks but rather the risks between financial institutions. I would like to understand what the credit ratings of these financial institutions are like. During the transfer process, what tier are the receiving and paying parties? People might have a misconception that since Luna promised a 20% return and ultimately failed, does that mean any project promising 15% or 20% returns is a scam? Additionally, how many times is the LP's capital specifically transferred? How much is set each time to achieve the expected return rate? Could you briefly answer these questions?
Richard Liu: Our clients are all licensed financial institutions. According to Standard & Poor's statistics on financial institutions over the past 20 years, the bad debt rate among these institutions is 0.25%, and it is expected to maintain this level going forward. This data is a comprehensive figure for both developed and developing countries worldwide. Currently, our borrowers are mainly developed country financial institutions, such as those in the UK, US, France, and Singapore. The bad debt rates in these countries or regions are generally lower than the global average. Moreover, our repayment terms are typically 1 to 6 days, gradually shortening to 1 to 3 days, and we charge daily under this model, which keeps bad debt rates very low. Statistically, it will be much lower than 0.25%, and currently, it is at 0, with expectations to remain at a very low level in the future.
Jason: You take the LP investors' money out and distribute it to various financial institutions. Each financial institution transfers for 1-3 days and then returns it. Therefore, you can transfer 50 to 100 times a year. Each time, you only need to charge a fee of about 10%, 20%, or 30% to achieve a return rate of 13-15%.
Richard Liu: It should be higher than the yield rate you mentioned. Many of our clients are quite stable, and borrowers pay interest daily, with rates in the range of 0.15% or 0.1%, and the annualized rate may reach over 20%. However, our funds are not always 100% utilized, especially when large-scale funds come in, the short-term utilization may drop to 70%. Normally, the utilization rate is around 80% to 90%, making it difficult to reach 100%. Therefore, the actual annualized return is about 20%. Luna's high yield was achieved through financial leverage, while our returns do not use any leverage; they are all solid cash collected daily. The clients' capital utilization rates have a certain stability; they are committed during the agreement signing. For example, if we provide a limit of 10 million, you need to pay the corresponding fees, even if you only use 8 million, you still need to pay based on 10 million.
Jason: This is somewhat akin to international financial institutions giving you a crypto credit card that can be borrowed and repaid at any time.
Richard Liu: If the other party borrows money today, the corresponding bill must be settled promptly, so there will always be borrowing and repayment daily. This is different from credit cards, where the repayment cycle is 30 days, which poses much higher risk since I cannot see the return of funds within 30 days. We will ensure that every fund's inflow and outflow is very clear. In addition, we will mint each transaction as an NFT on the blockchain for everyone to track and view these transactions.
Jason: This is also one of the reasons we are so excited. In fact, Luna has a bit of a 'robbing Peter to pay Paul' implication. However, Richard's product has huge demand in the traditional Web2 financial system, which can be amplified. As long as their BD does well, the demand for this product from traditional finance is very high, and currently, there is almost no upper limit. So the only threshold is how fast they can develop.
Richard Liu: If you participate as an LP, you will find that the entire SPV structure is particularly clear. Regarding the distribution of funds within the SPV, we have set many contracts. For example, our net profit must be positive every month. We will not use next month's money or the next investor's money to cover the current one. Each month, after deducting operating expenses and payments to investors, we must retain 2.5% of the profits; otherwise, our SPV would be considered in default. Therefore, our SPV has strict regulations that eliminate any possibility of 'robbing Peter to pay Paul'. The funds each month are tangible.
BlockBeats: What ways do ordinary investors have to participate in PayFi?
Jason: If it is a short-term investment specifically aimed at cross-border value conversion, the simplest way for ordinary investors is to complete KYC and then stake in Huma, as there is no more direct way for the vast majority to participate. Currently, we are discussing RWA, which involves several aspects: one is bringing more common assets from real life on-chain, such as wine. The other is using on-chain money to invest in popular assets, and you can participate in Ethena. Aside from these, using on-chain funds to invest in offline long-term credit products, especially crypto-native products, is unsecured and could lead to bankruptcy within a cycle. We have seen many such situations in the last cycle.
I feel that currently in the Crypto ecosystem, besides holding tokens like Ehena or ONDO, staking in Huma's products is the best way. If you have the opportunity to access primary or semi-primary stocks of companies like Twitter, you might want to buy a little, betting that they will be able to penetrate the PayFi track. Alternatively, you could buy tokens of public chains that place great importance on the PayFi track.
Richard Liu: Every month we will open a funding pool, ranging from 10 million to 20 million USD. There will be certain requirements for participation, and we also need to see if the product meets your needs. Besides Arf, we have other products on our platform. When we first collaborated on products with others, we usually used our own funds for experimentation first, and only after our product was proven successful would we promote it. More products will be launched in the coming months.
BlockBeats: From the perspective of the Solana Foundation, what is the position of PayFi in its strategic layout? Does the foundation see PayFi as an important direction for promoting breakthroughs in the Solana ecosystem? Can you share some actual support measures or future plans you have observed from the foundation?
Jason: In terms of infrastructure, when the cost of each transaction and the user entry threshold are low enough, the entire Web 3 will enter a new era of competing ecosystems and BD. In this era, public chains that perform well in these aspects will stand out. The tokens behind companies like Solana, Telegram, and Coinbase are very interesting. Solana has always focused on landing and consumer-facing applications, such as AI Agent, meme, and the past STEPN, which are all results of Solana's effective replication, and they have provided a lot of support in terms of infrastructure. They are actually very closely related to high-frequency payment scenarios. If the user threshold can be significantly lowered in payment or payment financing, it will obviously benefit the continuous development of the public chain itself.
Richard Liu: In fact, in Solana's ecosystem, there not only exists a Foundation but also a very strong team, and the Solana ecosystem closely collaborates with many leading projects. So I want to talk about some of our collaborations with the Solana ecosystem.
I personally feel very pleased with the cooperation with the Solana ecosystem. Over the past few months, I think they have accomplished everything I could think of. First, in marketing, we jointly organized the PayFi Summit. Throughout the process, Solana was very supportive and respectful towards us, without trying to take control. Not only did we hold the event this year, but we will also hold five more together next year, and their commitment is very strong.
During the development process, my team mainly worked on EVM-related tasks, and I am also a very skilled Solidity engineer, but building on Solana is completely different territory for us. So during the development process, we clearly stated that we needed help, and they arranged for two excellent engineers to follow up in real-time to ensure our direction was correct, which I greatly appreciated, and the entire development went smoothly. Liquidity is the biggest pain point in the entire RWA, and during the launch process, Solana recommended many LPs (liquidity providers). A significant portion of the funds invested today is introduced by Solana, and some funds will come in next month. I hope to involve some smaller investors, not letting all shares be occupied by big players.
PayFi is an emerging project that I am very enthusiastic about. I believe it is a product that the entire crypto community is looking for, one that can truly land and have a significant impact on real life; PayFi is such a product. However, this process requires a lot of publicity. Many people in the Solana ecosystem are writing articles about PayFi to promote it. Leading projects in Solana are also closely collaborating with us to explore cooperation. Jupiter recently expressed support for our launch on Solana and has clearly stated that it will cooperate with us. The entire Solana ecosystem is quite positive about PayFi, from the Foundation to the teams to the leading projects in the ecosystem.
BlockBeats: What recent progress and plans does Huma have?
Richard Liu: Our top priority is to enhance the competitiveness of the Arf product, and on that basis, enable all stakeholders in the Huma team to achieve profitability. There are relatively few projects that can reach this quickly. Secondly, why I decided to shift from Web2 to Web3. I think Web3 is developing very well, and we hope to at least theoretically allow early users and the ecosystem to benefit from the project's success. I hope more small investors can participate, and I am very positive about this. Therefore, we are actively preparing for the TGE, which is also an important task for the coming months.
The development of the entire PayFi does not only rely on the Solana Foundation or Human Protocol but also requires the joint efforts of many other projects. We are actively promoting the development of other projects within the ecosystem. Currently, we have five or six pools, and we expect to double that growth in a few months. At the same time, we will continue to promote the development of the PayFi Summit, although this does not directly impact our business, it is very valuable for the overall ecosystem development.
In the next stage, we hope to integrate more with DeFi. I mentioned earlier that our returns are very high, which puts us in a strategically advantageous position. But how can we create a product that everyone truly expects and admires? In this process, we need a lot of feedback from the community to create a product that everyone genuinely looks forward to.
Jason: We previously mentioned a question, the USDC staked in Huma itself cannot be staked again, because Huma has made many safety adjustments in its design to ensure the safety of the entire product. But will the assets staked later be re-staked like other protocols? Is there a plan for this in the future?
The answer is Yes. Our team is actively looking for solutions. We do this because I have prioritized security from the beginning and have set three principles for the team: minimize administrator permissions, meaning that even if you have the private key, you can steal Huma Finance's money, but you absolutely cannot steal users' money. The contract's testing coverage must reach 100%, and every branch must undergo comprehensive testing. Minimize dependency on other products, so we have not done any external integrations at this stage.
Due to the extensive work done on security, the integration aspect may be slightly weaker. However, our system has been running stably for over a year, and it has withstood the test in terms of security. Next, we will conduct more integrations, possibly collaborating with Pendle and others, so that everyone can not only participate in Huma Finance but also engage in other projects through Huma.
Space link: https://x.com/i/spaces/1zqJVYLVVddGB/peek
