Huma Finance: The underlying logic of the Lending+RWA+PayFi combination

Author: HAOTIAN

What do you think of the news that @humafinance raised $38 million? 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 of discussion? 2) Analyze the underlying business logic of Huma's Lending+RWA+PayFi. 3) What is the subsequent extension space of the PayFi track? Next, let me talk about my opinion:

1) PayFi is a new narrative concept proposed by 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, further implement the financial transformation of RWA physical assets, explore derivative gameplay such as "zero net cost shopping", "accounts receivable financing", "cross-border payment settlement", "creator economy", "supply chain finance" and so on;

On the other hand, in the current pure on-chain DeFi, interest-bearing Yield is trapped in the embarrassing dilemma of stacking leverage, such as AVS security consensus commercialization and DA capability commercialization, which can connect with the web2 real business economy and bring more abundant Yield sources to the chain world.

In addition, after the BTC and ETH spot ETFs were passed one after another, pure on-chain DeFi faced great regulatory compliance pressure, and the pure on-chain economy was criticized for not being able to implement infra > application. PayFi, a new hybrid economic model that integrates the web3 innovative economic model and has regulatory adaptability in the web2 traditional financial world, as a bridge between web3 and the traditional web2 real economy, will undoubtedly become the narrative focus of new business models and value creation methods.

2) Based on this narrative background, let's analyze why Huma Finance has become a new PayFi and leading project? Let me summarize it in general:

Huma was created by a team from Silicon Valley with rich experience in the field of web2 financial technology. It was originally positioned as a decentralized lending platform. Its business model is Income-Based Loans and revolving credit lines, etc., which belongs to the integrated business scope of Lending+RWA.

After that, it acquired the payment application Arf Financial and started business upgrades. Based on Arf's compliance qualifications and the rich products and business lines provided to cross-border payment licensed financial institutions in multiple countries, PayFi naturally became Huma's ultimate financial service goal and vision.

After all, it is a web3+web2 comprehensive financial service platform, so Huma Finance's product and business logic are also relatively complex. I will give 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 adds accounts receivable guarantee credit lines to attract institutional investors. Accounts receivable are customer bonds generated by the sale of goods or provision of services during the business operation of an enterprise, representing the company's future cash flow income. For example: there is a 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 guarantee credit lines provide more flexible funding application scenarios, and funds can be withdrawn at any time within the credit line, and can also be used in a circular manner. It will also be flexibly set according to the company's own operating conditions and future income stability.

The seemingly small financial product upgrade has become a more scalable, risk-controlled, and more stable product for institutional investors. It can help Huma occupy a larger market share and a diverse user group.

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), 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, which solves the threshold problem for most companies to enter the PayFi market in one stop.

Its existence is similar to the logic of Ethereum layer2 developing OP Stack and Solana promoting SOON, which is equivalent to formulating 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 provide 10%-20% dynamic income to investors of different levels (Senior or Junior), 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 4 trillion US dollars. By providing high-turnover (annual turnover 50+ times) liquidity support to licensed institutions, it can generate stable annualized income, which is by no means comparable to the pure token incentive model.

When the RWA narrative was popular before, Ondo Finance could obtain a stable yield with T-Bill (US government short-term debt instrument), but with the Fed's interest rate cut, this yield will be difficult to maintain, and Huma's logic of transforming real financial financing needs will surely be more durable as long as it works.

The above

If there are any new narrative highlights in the market recently, PayFi must have a place. In addition to its timely birth and the possibility of adding stable returns to pure on-chain DeFi, the most important thing is that its scalability is too rich.

Not limited to cross-border payments, including trade financing, supply chain finance, small and micro enterprise credit, consumer credit, international tuition payment and many other application scenarios that can be extended and have great imagination.

However, the PayFi track is still in its early stages of development. Its product line expansion and regulatory uncertainty require a period of exploration and precipitation. It is a new narrative direction worthy of special attention.