PayFi is an emerging concept. In this podcast, we talk with Richard Liu, the founder of Huma Finance, about this concept. Huma recently secured $38 million in funding, aiming to build a decentralized payment financing network on blockchain. Richard is a seasoned executive with seven years at Google and has multiple successful entrepreneurial ventures in Silicon Valley. His insights offer valuable lessons for anyone looking to enter the Web3 space.

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Guest Introduction

I’m Richard Liu, co-founder and co-CEO of Huma Finance. My background is mainly in engineering, and I worked at Google for many years, launching four products, the most notable being Google Fi, which has been ranked as one of the most favorable mobile operators in the U.S. since its birth in 2015.

After that, I founded Leap.ai, a company using machine learning for job matching, which was acquired by Facebook in 2019. Later, I became the CTO at EarnIn, where I met my co-founders, Erbil and Ji. Two years ago, we decided to start Huma Finance together.

Huma is a decentralized platform focused on financial services in the payment space, particularly in RWA (real-world assets). We recently merged with our largest client, Arf, and have processed over $1.8 billion in on-chain transactions, with stablecoins playing a crucial role.

My co-founder Erbil is a world-class growth expert, having led growth at Facebook and Lyft. We had great synergy at EarnIn. He almost joined Circle to be their CPO. I eventually convinced him to team up together to launch Huma.

Funding Experience

We recently announced a funding round totaling $38 million, including $10 million in equity financing and $28 million in liquidity. In terms of equity financing, we raised $8.3 million in our seed round. This round came relatively easy for us as this round primarily came from existing investors, who saw the rapid growth and success of the project, especially after we acquired our largest client.

Our lead investors is Distributed Global, a prominent U.S.-based fund known for early investments in many DeFi projects and Solana. They are relatively low key, but they are really strong and have prominent lPs such as Temasek.

This round also emphasized our expansion into the Asian market. We added Hashkey Capital to our captable. Folius Ventures was involved in our seed round and doubled down in this round. We also established a long-term strategic partnership with Stellar Development Foundation (SDF), which supported us in both equity and liquidity.

In summary, equity financing was relatively smooth for us. For liquidity, we’ve achieved some initial milestones and plan to reach $100 million in the next few months, which will require further work. Nonetheless, the participation of many high-quality investors in this large round is a strong endorsement of our progress and lays a solid foundation for future growth.

Why Folius, known for Game Investments, became one of the first investors

Jason Kam and I connected completely unplanned. At the time, he was conducting due diligence on another project, and after a brief phone call, we realized we had great synergy and kept on calling each other as I just started to explore the crypto space. Jason is extremely knowledgeable in the crypto space, and even though I was new to crypto, he found my Web2 experience valuable, so our conversations were very productive.

During the process of starting the company, Jason became a crucial advisor. Over two years ago, our understanding of Web3 and DeFi wasn’t deep, but Jason had profound insights into DeFi, and his guidance was immensely helpful. He introduced us to many early investors, including Robot Ventures (founded by the founders of Compound and Gauntlet).

Over the past two years, Jason has been incredibly supportive, and whenever I face challenges, my first thought is to call him. His generosity and readiness to help have been invaluable to us.

Moreover, I trust Jason deeply. After he invested in our project, I also allocated some of my own funds to his fund.

Understanding the PayFi Concept and How Huma Implements It

I believe PayFi is a highly significant concept, especially with Solana Foundation chairwoman Lily Liu leading the way to promote it. While Solana has numerous aspects worth discussing, in the past six months, they have heavily focused on PayFi in various forums. This provided us the opportunity to collaborate with the Solana Foundation, and we are co-hosting the first PayFi Summit at the TOKEN2049 conference with Solana Foundation. We will spotlight more than ten leading projects in the PayFi space, and both Lily Liu and I will give keynotes speaking.

PayFi, in my view, focuses more on financing services in the payment space and represents a unique track within RWA (real-world assets). Over the past two years, T-Bill led the way for RWAs and saw success. However, with changes in Federal Reserve interest rate policies, T-Bill opportunities will go down. So, what’s the next sustainable area? I firmly believe PayFi hold enormous potential and is the frontier of RWA.

Payments have always been one of the core use cases of crypto. Bitcoin’s whitepaper was all about peer-to-peer payments. Moving money from point A to point B at a fast speed is blockchain’s unfir advantage. Moreover, for crypto to achieve mainstream adoption, it needs a breakthrough, and payments could be the move prepared domain. Almost all major payment companies are already exploring and integrating crypto into their payment systems worldwide.

On top of that, Solana Foundation’s commentment to this field makes a difference. When I first met Lily, we discussed the PayFi concept, and I introduced her to Huma and Arf. She immediately saw how our work aligns with her PayFi vision, and we decided to push this concept forward together.

We define Huma as a PayFi network. Recently, we published the PayFi Stack on our site huma.fiannce, detailing the architecture of the PayFi ecosystem. This includes everything from the transaction layer, currency layer, custody layer, compliance layer, financing layer to application layer. Huma, as the PayFi network, is committed to have the best financial layer, and power amazing applications on our platform.

We see this structure as platform plus killer applications, similar to many tech companies. For example, Google has Android and also killer apps such as Google Search app and Youbute. uma, as a platform, operates similarly to Google and the Android ecosystem and third party applications, Since our launch last year, we’ve worked with five or six solid applications, the most successful one being Arf, which we decided to take in house after the merger.

Arf provides short-term liquidity to licensed financial institutions worldwide with relatively low risk and a 0% credit default rate so far. If you annulized the returns, it is about 20%, while we source funds at around 12% to 13% APY, allowing us to offer investors low-risk returns in the low-to-mid teens — about 7% higher than T-Bill. Meanwhile, we maintain 8% to 10% gross margins for growth.

Through this merger with Arf, Huma not only achieves rapid profitability but also ensures the sustainable development of the protocol.

Why Choose Circle, Solana, Stellar and Scroll as Partners

Starting with Circle, we may be one of Circle’s most successful use cases outside of trading. Huma and Arf’s use cases have been highly recognized by Circle. They recently released a case study on Arf, detailing how we use USDC to optimize transfer processes. Circle’s CEO has mentioned Arf as a key example of Circle’s non-trading applications in multiple speeches.

Arf’s core business is providing transfer solutions for financial institutions, especially in cross-border payments. By utilizing blockchain and stablecoins, we’ve solved the pre-funding problem. For instance, in the cross-border remittance industry, traditional channels like SWIFT are costly and slow. Our solution uses stablecoins to enable fast transfers from point A to point B, significantly reducing the need for pre-funding. So far, our system has processed over $1.8 billion in on-chain transactions. For Circle, this is a critical use case. Circle is also an investor in Huma and Arf, so we’ve had a deep collaboration since our early days.

When choosing a blockchain partner, we considered different technical architectures. We initially launched on Polygon because its ecosystem was growing rapidly at the time. However, as we focused on payment finance, we found Polygon wasn’t the best fit for our needs. We ultimately chose Solana and Stellar because they’ve been dedicated to the payment space from the beginning, and their technical architecture aligns well with our business. We’re co-hosting the upcoming PayFi summit in Signgapore while Stellar is the exclusive sponsor.

In the EVM ecosystem, we sought the most suitable partner and found Scroll to be the best choice, particularly for their work in ZK (zero-knowledge) technology. Scroll has excelled in community building, so we decided to collaborate on new projects. Our business, which already generates strong stablecoin yield from the real world, combined with Huma’s points and Scroll Marks, makes Scroll a great partner to launch our first campaign with.

Although we haven’t launched on Solana or Stellar yet, we expect to go live on both chains in October and will continue to build long-term partnerships in the payment blockchain space.

How to Address Regulatory Challenges

Regulatory challenges are a very important topic. First of all, most projects related to RWA (real-world assets) are actually eager to have a clear compliance framework. For us, compliance is not a major barrier; in fact, it aligns well with our strategy. We see regulatory trends as something to embrace because they provide more legitimacy and trust for our project.

It’s true that different countries have varying approaches to regulation, and the global regulatory landscape is quite fragmented, which presents some challenges for us. This is one of the main reasons we decided to merge with Arf. Arf is based in Switzerland and operates under frameworks like VQF, which allows them to work with financial institutions globally and provide liquidity services. Arf’s compliance foundation gives us great flexibility and freedom to expand our business worldwide.

To ensure smooth operations, we’ve implemented several key strategies for compliance:

1. Focus on financial institutions: On the lending side, we only work with financial institutions and do not deal with individual consumers. This greatly simplifies the compliance burden since financial institutions already meet the relevant regulatory requirements in their respective countries, eliminating the need to handle complex individual consumer regulations.

2. Professional investors only: Our investors must meet the standards of professional investors, known in the U.S. as Accredited Investors, meaning we target a financially qualified group of investors. This not only complies with regulations in most countries but also ensures a higher quality of investors.

3. Strict KYC/KYB procedures: All investors go through rigorous KYC (Know Your Customer) and KYB (Know Your Business) processes. While this sets a high entry bar, it’s necessary to ensure compliance. Additionally, the financial institutions we lend to all hold legitimate licenses, ensuring that our capital flows comply with regulations in most countries.

Through these measures, we can operate compliantly on a global scale and avoid falling into regulatory gray areas. Rather than taking risks in uncertain regulatory environments, we focus on areas with clear compliance, allowing us to concentrate on growing the business. This is one of the core reasons we merged with Arf, as they already have a strong compliance foundation.

This allows us to navigate the global regulatory environment with a clear, actionable path, ensuring both compliance and sustainable growth.

Future Roadmap

Our future development roadmap is clear. First, Arf’s business has already achieved strong product-market fit. Arf is performing exceptionally well with a 0% credit default rate and a very fast capital turnover — 50 cycles per year — resulting in extremely high capital efficiency. Although Arf has already processed $1.8 billion in on-chain transactions, it only required about $20 million in liquidity. Our goal is to increase its liquidity to $80 million to $100 million by the end of this year and aim for $200 million to $250 million next year. Our primary task is to provide more liquidity for Arf, as its business has proven to be highly scalable.

Secondly, the Huma platform supports not only internally developed applications but also external applications. For example, we have other applications in the pipeline, such as those in the credit card and trade finance sectors. These markets also have tremendous potential — for instance, the global credit card market is valued at $16 trillion, and trade finance is a $10 trillion industry.

We plan to launch some new products in the coming quarters, possibly as early as Q4 or at the latest by Q1. The first product will be a T+0 settlement service. Currently, many settlements are T+1, meaning they are settled the next day, but many institutions desire same-day settlement. We are working with several large financial institutions to develop a T+0 settlement system, utilizing blockchain’s shared custody functionality to enable immediate transfers triggered by smart contracts, without the need for traditional bank transfers.

Another innovative product is DePIN Financing (Decentralized Physical Infrastructure Network). Although this might not sound like a traditional PayFi application, it is actually an advanced PayFi use case. DePIN is an emerging field, and many DePIN projects require substantial capital, which can be challenging for ordinary users to access. We plan to provide a platform for these projects, allowing more people to participate in large infrastructure projects and earn stablecoin or token returns, with funds distributed via smart contracts.

Lastly, we are forming the foundation and plan for decentralization. We place great importance on community ownership, and as our platform has grown, we will next focus on developing a governance system and introducing a VE (Vote Escrow) model. Once we are fully prepared in governance, and when the external conditions are right, we will proceed with the decentralization. Therefore, our future roadmap includes scaling Arf, launching innovative products like T+0 and DePIN Finance, and preparing for decenralizationt.

In the RWA (real-world asset) space, I’m particularly optimistic about projects centered in Hong Kong. As a global financial hub, and with the Hong Kong government’s emphasis on stablecoins and compliance, they are leading the way. I believe the APAC region, especially Hong Kong and Singapore, will play a crucial role in the future development of RWA. Although our current business focus is in the U.S. and Europe, I plan to spend more time expanding our business in the APAC region, particularly in Hong Kong and Singapore.

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