Introduction
PayFi is a relatively small but promising field with limited projects. Currently, PayFi projects can be divided into two categories: cross-border trade and credit finance.
Huma Finance
Product Introduction: Huma Finance is currently the focus of the PayFi field. Its main business is PayFi applications for consumers and small and medium-sized enterprises (SMEs). It recently acquired Arf to address the liquidity of prepaid capital in cross-border payments.
Arf aims to solve the liquidity and timeliness issues of prepaid capital in cross-border payments. Through the Arf platform, trust issues between buyers and sellers are resolved without the need for traditional cross-border transaction requirements such as prepayments to banks or letters of credit. Arf provides a peer-to-peer service and builds an on-chain liquidity network. It provides stablecoins to enterprises in advance, eliminating the need for prepayments. When using Arf’s services, enterprises only need to pay the relevant fees and repay Arf within the agreed time.
Huma Finance’s main business revolves around the concept of “Buy Now, Pay Never” proposed by Lily Liu. The core concept is that customers can choose to use soon-to-be-due accounts receivable as collateral. Huma tokenizes these accounts receivable through its protocol, allowing customers to borrow from the loan pool. The enforcement part will be implemented by on-chain smart contracts. Its scalable space includes trade financing, micro-enterprise credit, and international tuition payment, among others.
Technical Architecture: Huma Finance’s PayFi Stack consists of six layers: transaction layer, currency layer, custody layer, financing layer, compliance layer, and application layer. It covers all levels from transaction processing to asset management, financing, and compliance. This full-stack design ensures that the entire process from loan application, asset evaluation, fund provision to final payment can be completed within the same ecosystem. PayFi greatly simplifies complex lending and payment processes, improves efficiency, and reduces costs through automation, decentralization, and multi-level technical integration.
Data Analysis: As of now, the total loan amount is 1 billion USD, and there are no records of defaults. Huma Finance, as a leader in the PayFi field, has raised 38 million USD in financing.
Future Market Development of PayFi
After introducing PayFi-related projects, we have also considered the regional application scenarios of PayFi. ArkStream believes that PayFi undoubtedly has the potential for global mass adoption, and its early application scenarios may not be limited to developed countries (such as the United States, Singapore, 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 innovation capabilities. Due to clearer regulatory frameworks and policy support, stablecoins like USDC, PYUSD, and EUROC are widely used in these countries. Finding a suitable entry point, such as collaborating 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:
At the same time, PayFi can provide financial services in areas where traditional financial services are lacking. By offering products like crypto microloans and flash loans, the decentralized and cross-border convenience of crypto payment systems can provide financial services to the “unbanked” population. For example, in Africa, Southeast Asia, Latin America, or countries with high inflation currencies like Nigeria and Argentina. Providing stable PayFi products may achieve scalability faster in emerging markets where complex traditional financial infrastructure is lacking.
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 supplement existing application scenarios. In developing countries, promote the penetration of encrypted payments and PayFi applications in cross-border remittances and other markets.
Development Prospects
Although PayFi is a relatively new concept and has few existing projects, ArkStream believes that PayFi has great potential for future development considering both the development of cryptocurrency payment projects and the external economic environment.
The global high-interest rate environment caused by the US interest rate hike in recent years has attracted attention to bond-like products, and many users in the crypto market have invested in tokenized bonds. Users value the stable underlying assets and relatively high liquidity of these products.
According to RWA.XYZ data, the tokenized US treasuries market has grown 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 treasuries continues to decline. As investors’ reliance on US treasuries weakens, funds need to find the next investment opportunity. Investors are seeking other assets with sustainable value and stable sources of income.
PayFi, combined with the rise of the RWA model, perfectly meets this demand. Currently, the total locked value (TVL) in the RWA field has reached $6 billion and continues to rise. RWA moves real-world assets such as bonds, accounts receivable, and supply chain financial assets onto the blockchain through tokenization, offering investors diversified choices and higher liquidity.
Here are three potential RWA targets:
1. MakerDAO RWA provides traditional assets such as real estate and accounts receivable, combined with the DAI stablecoin issued by MakerDAO, to bridge the funding needs in the real world and the liquidity on the blockchain. It is currently the top-ranked RWA protocol in terms of TVL.
2. Tether Gold provides tokens linked to traditional gold, allowing investors to invest in gold without directly holding physical gold through cryptocurrencies.
3. Ondo Finance provides risk-rated government bonds and corporate bonds on the blockchain. Funds can be invested based on risk preferences. In the context of declining government bond interest rates, RWA products such as corporate loans provided by Ondo may be more attractive to investors.
Conclusion
Currently, the number of PayFi-related projects is extremely limited, and most of them are still in the early stages of development. Therefore, we pay more attention to the innovativeness of PayFi project solutions.
From a business model perspective, PayFi combines multiple tracks, 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 validated the feasibility of their business models, proving their market demand and growth potential. By referring to the market values of these tracks, PayFi, as a composite innovative business model, may have greater development space. Considering that the market values of leading projects in encrypted payments, credit financing, and RWA have reached tens of billions to hundreds of billions of dollars, we have reason to speculate that with the unlocking and overlapping of multiple scenarios such as cross-border payments, supply chain finance, and corporate financing, the overall market value of the PayFi field may even exceed this upper limit.
From a product perspective, future PayFi projects should focus on optimizing efficiency and experience in specific payment scenarios. Undoubtedly, PayFi is one of the few remaining blue ocean markets, but it currently lacks a large number of application projects. We call on more developers to use existing encrypted payment technologies, focus on the global market, and innovate based on actual real-life needs.
For example, at the Token2049 conference this year, we noticed the cooperation between TADA Ride and the Ton Network, which reduced the commission rate of ride-hailing software through encrypted payment and profit sharing, making it stand out among similar ride-hailing platforms. We also noticed Ether.Fi’s ongoing encrypted payment card business, where its Cash business not only functions as a traditional encrypted payment application, allowing users to spend with deposited crypto assets but also allows users to use the income from liquid staking to repay their expenses.
The breakthroughs in these real-world scenarios are the huge potential of PayFi on a global scale. Project parties should not only focus on finding the next high-yield “pond” for on-chain funds but also pay more attention to how to let users in traditional industries experience the convenience of PayFi from a price and product perspective, thereby further improving the penetration rate of the crypto market.
It can be imagined that there will be many innovative financial products in the future that are difficult to achieve in traditional financial systems, such as:
– Instant loans: Users can obtain loans with more advantages than traditional financial channels by collateralizing crypto assets through the PayFi platform.
– Advanced consumption and investment: Users can consume or invest in advance before the arrival of future income cycles without incurring debt.
– High-yield liquid funds: Users can enjoy a high yield rate of more than 10% while retaining the liquidity of funds through pledging and providing liquidity.
– Prepayment of interest on locked-term financial products: Users can use interest as liquid funds before the maturity of financial products.
These innovative products utilize the core concept of “time is money” and maximize the value of time. We realize that PayFi is not just a castle in the air or a carnival for “insiders” only. From both practical and innovative perspectives, PayFi is gradually opening up the path of integration between cryptocurrencies and traditional finance. As a long-term investor, ArkStream sees the potential of PayFi and even foresees a future without banks.
The innovation of these application scenarios combines the needs of DeFi and real-life applications, further demonstrating the tremendous potential of PayFi in releasing capital efficiency. ArkStream believes that PayFi has unlimited long-term prospects.
