Author: Haotian

How do you view the news of @humafinance raising $38 million? It has to be said that in the context of a declining market and a lack of new narrative hotspots, Huma's new concept of PayFi is truly eye-catching.

So, 1) Why can PayFi become the new topic of discussion? 2) Analyze the underlying business logic of Huma's Lending+RWA+PayFi. 3) How is the follow-up extension space of PayFi's track? Next, let's talk about my opinion:

1）PayFi is a new narrative concept sold by the Solana Foundation, essentially an innovative attempt to apply web3 technology (Programmability currency and Tokenomics) to the real economy, aiming to expand pure on-chain financial innovation (Decentralized Finance) to a wider economic system.

On the one hand, further landing the financial transformation of RWA physical assets, exploring derivative plays such as 'zero net cost shopping', 'accounts receivable financing', 'cross-border payment Settlement', 'creator economy', 'Supply Chain finance', etc.

On the other hand, in the current pure on-chain Decentralized Finance, the yield of Yield is in an awkward situation of leverage stacking. Products such as AVS security Consensus commercialization, DA capacity commercialization, can be aligned with the web2 physical business economy, bringing more abundant sources of Yield to the on-chain world.

In addition, after BTC, ETH Spot, and ETF have successively passed, pure on-chain Decentralized Finance is facing significant compliance pressure, and pure on-chain economy has been criticized for the failure of infra > application. And PayFi, as a new hybrid economic model that combines web3 innovative economic models with regulatory adaptability in the web2 TradFi world, will undoubtedly become the narrative focus of new business models and value creation methods bridging the web3 and traditional web2 physical economies.

2. Based on this narrative background, let's analyze why Huma Finance has become a rising star and leading project in PayFi. First, let me summarize briefly:

Huma is a team from Silicon Valley with rich experience in the field of web2 fintech. It was initially positioned as a Decentralization lending platform, with business models such as Income-Based Loans and revolving credit lines, belonging to the integrated business scope of Lending+RWA.

After acquiring payment application Arf Financial, Huma began to upgrade its business. Based on Arf's compliance qualifications and the rich products and business lines provided by licensed financial institutions for cross-border payments in multiple countries, it is natural that PayFi has become Huma's ultimate financial service goal and vision.

After all, it is a web3+web2 integrated Financial Service platform, so the products and business logic of Huma Finance are relatively complicated. I will illustrate three highlights as examples.

1. Continuously optimized product business lines: HumaV1 mainly provides common credit products such as revolving credit loans and accounts receivable financing, while HumaV2 adds accounts receivable guarantee credit limit to attract institutional investors. Accounts receivable are customer debts generated by the sale of goods or provision of services in the process of enterprise operation, representing future cash flow income of the enterprise. For example, payment waiting periods exist in automobile 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 limits provide more flexible funding application scenarios, allowing funds to be withdrawn at any time within the credit limit and also allowing for recycling. The limits will also be flexibly set based on the company's own operating conditions and future income stability.

Seemingly minor upgrades to financial products have become more scalable, risk-controlled, and stable in terms of returns for institutional investors. They can help Huma gain a larger market share and a more diverse user base.

2. PayFi Stack Modular Architecture: This is an open and modular technical architecture created 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 multiple restrictions, and a financing protocol layer with a mature and rich business product line, which solves most of the barriers for enterprises to enter the PayFi market in one-stop manner.

Its existence and the development of layer2 on Ethereum are similar to the logic of OP Stack and the advancement of Solana, which effectively establishes a common framework and standards for the PayFi industry, enabling technological innovation and business model evolution in the PayFi field.

3. Stable real-world APY returns: Unlike most pure Decentralized Finance projects that rely on token economic models to maintain basic yield returns, Huma protocol brings the huge demand for financial products in the off-chain world to on-chain, becoming a new breakthrough in breaking the deadlock of pure Decentralized Finance returns. For example, the Huma/Arf yield pool provides dynamic returns of 10%-20% for investors at different levels (Senior or Junior), and with platform gains, the APY can exceed 20%.

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. By providing licensed institutions with high turnover (annual turnover of 50+ times) Liquidity support, stable annual returns can be generated, which is incomparable to pure Token incentive models.

Before the RWA narrative became popular, Ondo Finance was able to obtain a stable yield with T-Bills (short-term US government debt instruments), but with the Fed's rate cut, this yield will be difficult to maintain, and the logic of Huma transforming real financial financing needs should be more sustainable as long as it runs smoothly.

Above

If there is any new narrative highlight in the market recently, PayFi must have a place. In addition to its timely birth, which can add stable income possibilities to pure on-chain Decentralized Finance, the most crucial point is that its scalability is extremely abundant.

Not limited to cross-border payments, including trade finance, Supply Chain finance, micro and small enterprise credit, consumer credit, international tuition payment, and many other expandable and imaginatively large application scenarios.

However, the PayFi track is still in the early stages of development, and it will take some time to explore and accumulate in terms of product line expansion and regulatory uncertainties. It is a new narrative direction worth following.