Written by: Haotian
What do you think of @humafinance’s $38 million financing? It has to be said that in the context of the increasingly sluggish market and the lack of new narrative hotspots, Huma’s new PayFi concept is really eye-catching.
So, 1) Why has PayFi become a new topic? 2) Analyze the underlying business logic of Huma's Lending+RWA+PayFi. 3) What is the follow-up expansion space of the PayFi track? Next, let me talk about my opinion:
1) PayFi is a new narrative concept proposed by the Solana Foundation. It is essentially an innovative attempt to apply web3 technology (programmable currency and token economics) to the real economy, aiming to expand pure on-chain financial innovation (DeFi) to a wider economic system.
On the one hand, we will further implement the financial transformation of RWA physical assets and explore derivative gameplay such as "zero net cost shopping", "accounts receivable financing", "cross-border payment settlement", "creator economy", and "supply chain finance";
On the other hand, in the current pure on-chain DeFi, interest-bearing Yield is caught in the embarrassing dilemma of stacked leverage. Commercialization of AVS security consensus and DA capabilities can connect with the web2 real business economy and bring richer sources of Yield to the on-chain world.
In addition, after the BTC and ETH spot ETFs were approved, pure on-chain DeFi faced great regulatory compliance pressure, and the pure on-chain economy was criticized for not being able to implement the infra > application model. PayFi, a new hybrid economic model that integrates the innovative economic model of web3 and has regulatory adaptability in the traditional financial world of web2, will undoubtedly become the narrative focus of new business models and value creation methods as a bridge between web3 and the traditional web2 real economy.
2) Based on this narrative background, let’s analyze why Huma Finance has become a new and leading project in PayFi. Let me first summarize it in general:
Huma was founded by a team from Silicon Valley with extensive experience in the field of web2 fintech. It was originally positioned as a decentralized lending platform with business models such as Income-Based Loans and revolving credit lines, which falls within the integrated business category of Lending+RWA.
After that, it acquired the payment application Arf Financial and began to upgrade its business. Based on Arf's compliance qualifications and the rich products and business lines it provided to licensed financial institutions for cross-border payments in multiple countries, PayFi naturally became Huma's ultimate financial service goal and vision.
After all, it is a web3+web2 integrated financial service platform, so Huma Finance's products and business logic are relatively complex. I will cite three highlights to illustrate:
1. Continuously optimized product business lines: HumaV1 mainly provides common credit products including revolving credit loans and accounts receivable factoring, while HumaV2 has increased the credit line for accounts receivable guarantees to attract institutional investors. Accounts receivable are customer bonds generated by the sale of goods or provision of services during the business operation, representing the company's future cash flow income. For example: the payment waiting period for automotive parts suppliers, large construction contractors, publishing industry, SaaS software service providers, etc.;
Accounts receivable services are sufficient to meet the needs of small and micro enterprises, while accounts receivable secured credit lines provide more flexible funding application scenarios. Funds can be withdrawn at any time within the credit line and can be recycled. They can also be flexibly set based on the company's own operating conditions and future income stability.
The seemingly small upgrade of financial products has become a product with more scalability, controllable risks and more stable returns for institutional investors, which can help Huma occupy a larger market share and a diversified user base.
2. PayFi Stack modular architecture: This is an open, modular technical architecture built by Huma Finance based on the business characteristics of PayFi, including: transaction layer (Solana, Stellar), currency layer (USDC, PYUSD), custody layer (Fireblocks, Cobo), compliance layer (Chainalysis, Elliptic), financing layer (Huma), and application layer (Arf, Raincard).
This is a complex but systematic PayFi applicability stack service, involving a high TPS public chain transaction execution layer, a complex compliance layer with many restrictions, and a financing agreement layer with mature and rich business product lines. It solves the threshold problem for most companies to enter the PayFi market in one stop.
Its existence is similar to the development of OP Stack in Ethereum layer2 and the promotion of SOON by Solana. It is equivalent to establishing a common framework and standards for the PayFi industry, which can activate technological innovation and business model evolution in the PayFi track.
3. Stable real-world APY income: Unlike most pure DeFi projects that rely on the token economic model to stack nesting dolls to maintain basic yield income, the Huma protocol has moved the huge demand for financial products in the off-chain world to the chain, becoming a new breakthrough to break the deadlock of pure DeFi income. For example: the Huma/Arf income pool can give investors of different levels (Senior or Junior) a dynamic income of 10%-20%, and the platform gain will reach more than 20% APY.
Huma provides real-time liquidity solutions for the cross-border payment industry through its Arf platform, connecting to the global cross-border payment market worth US$4 trillion. By providing high-turnover (50+ times annual turnover) liquidity support to licensed institutions, it can generate stable annualized returns, which is by no means comparable to the pure token incentive model.
When the RWA narrative was popular, Ondo Finance could obtain a stable yield with T-Bill (a short-term debt instrument of the US government). However, with the Fed's interest rate cuts, this yield will be difficult to maintain. As long as Huma's logic of converting real financial financing needs works, it will surely be more sustainable.
End
If there are any new narrative highlights in the market recently, PayFi must have a place. In addition to its timely birth, it can add new possibilities for stable returns to pure on-chain DeFi. The most important thing is that its room for expansion is so rich.
It is not limited to cross-border payments, and includes trade financing, supply chain finance, small and micro enterprise credit, consumer credit, international tuition payment, and many other application scenarios that are extensible and have great potential.
However, the PayFi track is still in its early stages of development, and its product line expansion and regulatory uncertainty require a period of exploration and sedimentation. It is a new narrative direction that deserves special attention.
