Huma's Risk Control Logic: How to Avoid 'Bad Debts' in Unsecured Lending? Smart Contracts are Key
Many people worry: Huma engages in unsecured lending, what if a user borrows money and does not repay it? Wouldn't that result in bad debts? In fact, Huma's risk control logic is very comprehensive, with smart contracts at its core, mainly divided into three steps.
The first step is 'Income Authenticity Verification'. When users apply for a loan, they must submit proof of income (salary statements, invoices, remittance records). The smart contract will automatically connect with third-party data sources for verification — for example, for salaried users, it will confirm with the employer's payroll system 'whether this job really exists and whether the salary is accurate'; for invoice users, it will confirm with the payer's financial system 'whether the invoice is genuine and whether payment will be made on time'. If data is falsified, loan approval is directly denied, eliminating risk at the source.
The second step is 'Dynamic Adjustment of Credit Limits'. The smart contract will determine credit limits based on income stability: the more stable the income, the higher the limit; if the income fluctuates greatly, the limit will be lower. For example, users who receive a fixed salary of 10,000 each month can be approved for 90% of the limit; while freelancers, whose income varies, may only be approved for 70% of the limit, reducing the probability of 'unable to repay the money'.
The third step is the 'Bad Debt Safety Net Mechanism'. Huma will take a portion from the interest of each loan and place it into a 'Risk Reserve Pool'. If there are a small number of bad debts (for example, if a user suddenly loses their job and cannot repay), the reserve pool funds will first be used to cover liquidity providers, so that LPs do not bear the loss. Moreover, Huma will regularly update its risk control model to optimize algorithms based on actual bad debt situations, making risk control increasingly precise.
It is precisely this three-step logic that keeps Huma's bad debt rate at a very low level, allowing it to engage in unsecured lending while also protecting the safety of funds.
