The main aim is to address the liquidity of prepaid capital in cross-border payments. Arf’s vision is to solve the liquidity and timeliness issues of prepaid capital in cross-border payments. Through the Arf platform, the trust issue between buyers and sellers is resolved, eliminating the need for traditional cross-border transaction requirements such as prepayment to banks or letters of credit. Arf builds an on-chain liquidity network by providing peer-to-peer services and offering stablecoins on-chain in advance to enterprises, thereby eliminating the need for prepayment. When using Arf’s services, enterprises only need to pay the relevant fees and repay Arf within the agreed time.
At the same time, Huma Finance’s main business revolves around Lily Liu’s concept of “Buy Now, Pay Never.” The core concept is that customers can choose to use their expiring accounts receivable as collateral. Huma tokenizes these accounts receivable through its protocol, and customers can borrow from the loan pool, with the enforcement part implemented by on-chain smart contracts. Its scalable space includes trade financing, micro-enterprise credit, international tuition payment, etc.
Technical architecture: Huma Finance’s PayFi Stack consists of six layers: transaction layer, currency layer, custody layer, financing layer, compliance layer, and application layer, covering all levels from transaction processing to asset management, financing, and compliance. This full-stack design ensures that the entire process from loan application, asset assessment, fund provision to final payment can be completed within the same ecosystem. PayFi greatly simplifies complex lending and payment processes, enhances efficiency, and reduces costs through automation, decentralization, and multi-level technical integration.
Data analysis: As of now, there is a total loan amount of $1 billion with no records of default. Huma Finance, as a leader in the PayFi race, has raised $38 million in financing.
PayFi’s Future Market Development: After introducing the relevant projects of PayFi, we also considered the regional application scenarios. ArkStream believes that PayFi undoubtedly has the potential for global mass adoption, and its initial application scenarios may not be limited to developed countries such as the United States, Singapore, and Europe. We believe that emerging markets also have broad prospects.
Market strategy in developed countries: In developed countries, PayFi can complement existing digital payment systems with its integrated DeFi innovations. Due to clearer regulatory frameworks and policy support in developed countries, cryptocurrencies such as USDC, PYUSD, and EUROC are already widely used. Finding a suitable entry point, such as partnering with retailers, e-commerce platforms, and cross-border financial platforms, to build low-cost and more efficient encrypted payment channels may accelerate the opening of the PayFi market.
Opportunities in emerging markets: Meanwhile, PayFi can provide financial services to areas with a lack of traditional financial services. By offering products such as encrypted microloans and flash loans, the decentralized and cross-border convenience of the encrypted payment system can provide financial services to the “unbanked population” in these regions. For example, in Africa, Southeast Asia, Latin America, or countries with high inflation such as Nigeria and Argentina. Because emerging markets lack complex traditional financial infrastructure, providing stable PayFi products may achieve scalability faster than in developed countries.
Therefore, ArkStream concludes that PayFi should adopt multiple market development strategies and pursue dual-track development: in developed countries, focus on iterating and establishing partnerships to complement existing application scenarios. In developing countries, promote the penetration of encrypted payments, PayFi landing applications, and cross-border remittance markets.
Prospects for Development: Although the concept of PayFi has been proposed recently, its implemented projects are still relatively scarce. However, ArkStream believes that PayFi has potential for future development in the current environment, considering both the development of encrypted payments and the external economic environment, which are highly favorable to PayFi.
In recent years, the global high-interest rate environment caused by the US interest rate hikes has led to increased attention to bond-like products, and many users in the cryptocurrency market have transferred their funds to the market of tokenized bonds. Users value the stable underlying assets and the relatively high liquidity and traits of these tokenized bonds.
According to RWA.XYZ data, the market size of tokenized US bonds has risen from $770 million in early 2024 to $1.916 billion as of August 1, 2024, an increase of 248%.
With the announcement of interest rate cuts in the United States, the yield of US bonds continues to decline, and investors’ reliance on US bonds weakens. At the same time, these funds need to find the next receiving scenario. Investors turn to find other assets with sustainable value and stable returns.
PayFi, combined with the RWA model, fills this demand. The total locked-in value (TVL) in the RWA race has reached $6 billion and continues to rise. RWA moves real-world assets (such as bonds, accounts receivable, supply chain financial assets, etc.) onto the chain through tokenization, providing investors with diversified options and higher liquidity.
Here, we provide three potential RWA targets:
1. MakerDAO RWA provides traditional assets such as real estate and accounts receivable, combined with the stablecoin DAI issued by MakerDAO, to effectively connect off-chain funding needs with on-chain liquidity. It is currently the top-ranked RWA protocol in terms of TVL.
2. Tether Gold provides tokens pegged to traditional and gold, allowing investors to invest in gold through cryptocurrencies without the need to directly hold physical gold.
3. Ondo Finance provides risk-graded national bonds, corporate bonds, and other real-world financial assets on-chain. Funds can be invested based on risk preferences. Against the backdrop of declining government bond interest rates, RWA products such as corporate loans provided by Ondo may be more in line with investors’ preferences.
Conclusion: Currently, there is a limited number of projects related to the PayFi race, and most of them are still in the early stages of development. Therefore, we pay more attention to the innovative solutions of PayFi projects.
From a business model perspective, PayFi combines multiple races, including encrypted payments (such as Ripple, Stellar), DeFi lending (such as AAVE, Compound), and RWA (such as MakerDAO RWA, Ondo Finance). Projects in these fields have successfully verified the feasibility of their business models, proving their market demand and growth potential. By referencing the market value of these races, PayFi, as a compound innovative business model, may have greater development space. Considering that leading projects in the fields of encrypted payments, credit financing, and RWA have market values ranging from billions to hundreds of billions of dollars, we have reason to speculate that with the unlocking and superposition of multiple scenarios such as cross-border payments, supply chain finance, and corporate financing, the overall market value of the PayFi race may even surpass this upper limit.
From a product perspective, future PayFi project development should focus on optimizing efficiency and experience in segmented payment scenarios. Undoubtedly, PayFi is one of the few remaining blue ocean markets at present, but this race still lacks a large number of application projects. We call for more developers to use existing encrypted payment technology, focus on the global market, and innovate in line with actual needs in real life.
For example, at this year’s Token2049 conference, we noticed the cooperation between TADA Ride and the Ton Network, which reduced the commission rate of ride-hailing software through encrypted payments and profit-sharing, making it stand out among similar ride-hailing platforms. At the same time, we also noticed the ongoing business of Ether.Fi in the encrypted payment card business, where its Cash service not only has the functions of traditional encrypted payment applications, such as using encrypted assets for consumption but also allows users to use the income from liquid staking to repay their expenses.
The breakthroughs in these real-life scenarios are the great potential that PayFi can refer to worldwide. Project parties should not only focus on finding the next high-yield “reservoir” for on-chain funds but also pay more attention to how to make users in traditional industries experience the convenience of PayFi from a price and product perspective, thereby further improving the penetration rate of the encrypted market.
It can be imagined that in the future, many new financial products that are difficult to achieve in the traditional financial system will emerge, such as:
1. Instant loans: By collateralizing encrypted assets on the PayFi platform, users can obtain loans that are more advantageous than traditional financial channels.
2. Advance consumption and investment: Users can consume or invest before their income cycle arrives without incurring debt.
3. High-yield liquidity funds: By pledging and providing liquidity, users can enjoy a yield of more than 10% while retaining the liquidity of funds.
4. Interest payment on lock-up period financial products in advance: Users can use interest as liquid funds before the financial product matures.
These innovative products utilize the core concept of “time is money” and maximize the value of time. We are aware that PayFi is not an empty castle in the air or just a “celebration for insiders.” Whether from a practical or innovative perspective, PayFi is gradually bridging the integration of encryption and traditional finance. As a long-term investor, ArkStream sees the potential of PayFi and even envisions a future without banks.
The innovation of these application scenarios combines the needs of DeFi and real-life applications, further validating the tremendous potential of PayFi in unleashing capital efficiency. ArkStream believes that PayFi has unlimited long-term prospects for application.
