The main goal 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 transactions such as prepayment to banks or letters of credit. Arf builds an on-chain liquidity network by providing peer-to-peer services and providing stable coins on the chain in advance to enterprises, thus 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.
Meanwhile, Huma Finance’s main business revolves around the concept of “Buy Now, Pay Never” claimed by Lily Liu. Its core concept is that customers can choose to use expiring accounts receivable as collateral. Huma tokenizes these accounts receivable through its protocol, and customers can borrow from the loan pool, while the enforcement part will be implemented by on-chain smart contracts. Its expandable 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 evaluation, fund provision to final payment can be completed within the same ecosystem. PayFi greatly simplifies the complex lending and payment process, improves efficiency, and reduces costs through automation, decentralization, and multi-level technology integration.
Data analysis: As of now, there is a total lending amount of 1 billion US dollars with no default records. Huma Finance, as a leader in the PayFi track, raised 38 million US dollars in financing.
Future market development of PayFi: 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 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 in developed countries, stablecoins such as USDC, PYUSD, and EUROC are already widely used in these countries. Finding a suitable entry point, such as cooperation with retailers, e-commerce platforms, and cross-border financial platforms, to build a low-cost and more efficient encrypted payment channel may accelerate the opening of the PayFi market.
Opportunities in emerging markets: At the same time, 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 encrypted payment systems can provide financial services to the “unbanked population” in these regions, such as Africa, Southeast Asia, Latin America, or countries with high inflationary fiat currencies like 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 iterative development and establish partnerships to assist existing application scenarios; in developing countries, promote the penetration of encrypted payments and PayFi in landing applications and cross-border remittance markets.
Prospects for development: Although the concept of PayFi has been proposed recently, its landing application projects are relatively scarce. However, ArkStream believes that PayFi has the potential for future development in the current environment, and we see significant advantages in both the development of encrypted payments and the external economic environment.
In recent years, the global high-interest rate environment caused by the US interest rate hike has attracted attention to bond-like products, and many users in the cryptocurrency market have transferred funds to the tokenized bond market. Users value the stable underlying assets and relatively high liquidity of these products.
According to RWA.XYZ data, the tokenized US bond market has grown from $770 million in early 2024 to $1.916 billion today (as of August 1, 2024), an increase of 248%.
With the continuous decline in US bond yields due to the announcement of interest rate cuts, investors’ reliance on US bonds has weakened, and this part of the funds needs to find the next scene to take over. Investors are turning to find other assets with sustainable value and stable sources of income.
PayFi, combined with the RWA model, fills this demand. The total locked value (TVL) in the RWA track has reached $6 billion and continues to rise. RWA moves real-world assets such as bonds, accounts receivable, and supply chain finance assets onto the chain through tokenization, providing investors with diversified choices and higher liquidity for assets.
Here, we provide 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 effectively connect the off-chain funding demand with on-chain liquidity. It is currently the top-ranked RWA protocol in terms of TVL.
2. Tether Gold provides tokens linked 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 government bonds and corporate bonds of real financial assets on-chain. 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 in line with investor preferences.
Conclusion: Currently, there are very few projects related to the PayFi track, and most of them are still in the early stages of development. Therefore, we pay more attention to the innovative solutions provided by PayFi projects.
From a business model perspective, PayFi combines multiple tracks such as 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 referring to the market value of these tracks, PayFi, as a composite innovative business model, may have greater development space. Considering that the market value of leading projects in encrypted payments, credit financing, and RWA has reached 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 track may even exceed this upper limit.
From a product perspective, future PayFi project development should focus on optimizing efficiency and user experience in segmented payment scenarios. Undoubtedly, PayFi is one of the few remaining blue ocean markets at present, but this track still 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 the actual needs of real life.
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 payments and profit sharing, making it stand out among similar ride-hailing platforms. At the same time, we also noticed the encrypted payment card business being carried out by Ether.Fi, which 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.
These breakthroughs in real-life scenarios are the tremendous potential that PayFi can refer to globally. Project parties should not only focus on finding the next high-yield “reservoir” for on-chain funds but should pay more attention to how to let users in traditional industries experience the convenience of PayFi from the perspective of price, products, and other benefits, thereby further improving the penetration rate of the encrypted market.
It can be imagined that there will be many new financial products in the future that are difficult to achieve in traditional financial systems, such as:
1. Instantaneous lending: By mortgaging encrypted assets through the PayFi platform, users can obtain loans that are more advantageous than traditional financial channels.
2. Advance consumption and investment: Without incurring debt, users can consume or invest before the arrival of future income cycles.
3. High-yield liquidity funds: By pledging and providing liquidity, users can enjoy a high yield rate of more than 10% while maintaining the liquidity of funds.
4. Early payment of lock-up period financial product interest: Users can use the 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 just a castle in the air or a carnival for “insiders” only. Whether from a practical or innovative perspective, PayFi is gradually connecting 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 verifying the huge potential of PayFi in releasing capital efficiency. ArkStream believes that PayFi has unlimited long-term application prospects.
