"Where does the double-digit annualized return provided by Huma come from? Could it become the next Celsius?"
The recent heated discussion in the community about Huma has made this issue a focal point. As part of the PayFi network, Huma offers an annualized return of up to 10.5%, a model that has sparked considerable controversy. Some question whether the underlying client quality is sufficiently high and worry about hidden higher credit risks; others believe that this innovative operation mode of instant capital turnover is a breakthrough unattainable by traditional finance. This discussion has not only made Huma a center of public opinion but has also brought the emerging concept of PayFi (Payment Finance) into the spotlight.
PayFi (Payment Finance) is an innovative model that combines blockchain technology with decentralized finance (DeFi), with the core idea of optimizing capital flow efficiency by releasing the time value of money (TVM) to solve the high costs and inefficiencies of traditional payment systems.
Traditional payment systems have long faced three major pain points:
1. Long settlement cycles for cross-border payments (3-5 days)
2. High transaction fees (average 6.35%)
3. Complicated intermediary processes (involving multiple banks and clearing institutions)
This results in long accounts receivable periods of 30-90 days for companies, leading to low capital efficiency. PayFi leverages the decentralized nature of blockchain to achieve T+0 real-time settlement, significantly improving capital turnover efficiency, and by eliminating intermediary steps, reducing cross-border payment costs to below 0.1%, with the savings directly returned to deposit users.
Compared to DeFi, while PayFi is also based on blockchain, its positioning and goals are different. DeFi primarily focuses on decentralized lending, trading, and yield farming financial services, while PayFi concentrates on payment financing, tokenizing real-world assets (RWA), such as transforming accounts receivable and invoices into on-chain digital assets to optimize financing processes.
PayFi has a wide range of application scenarios, which can be divided into the following sub-sectors:
Cross-border payments: Traditional cross-border payments usually require processing through multiple banks and clearing institutions, with settlement periods lasting 3 to 5 days. This delay can lead to cash flow tension for international trade companies and cross-border e-commerce platforms, affecting their capital turnover efficiency. Currently, the scale of pre-funded capital in global cross-border payments reaches up to $4 trillion (Huma Finance data).
Credit card payments: The billing cycle for credit cards is usually 30 days, and the global credit card payment market size reaches $16 trillion (Huma Finance data). PayFi can achieve T+0 settlement for credit card payments, helping clients optimize cash flow.
Trade finance: Trade cycles typically last 30-90 days, and many small and medium-sized enterprises mortgage invoices to banks to obtain funds in advance to alleviate capital pressure. However, companies with lower credit ratings often face higher interest rates or are unable to obtain credit. PayFi provides on-chain cash flow solutions for qualified clients through KYC certification, reducing costs and improving capital efficiency. The global market size is approximately $10 trillion (Huma Finance data).
Other sub-sectors include Depin and foreign exchange
Huma Finance: The leader in the PayFi ecosystem
Huma is a protocol focused on the PayFi sector. After the launch of Huma 2.0, it supports a Permissionless mode, allowing users to provide liquidity without KYC. After depositing funds into the protocol, the funds will be divided into two parts: nearly 80% will be allocated to PayFi Assets in PayFi Institutional, while the remaining 20% will be allocated to Market-Neutral Liquid DeFi Protocols to meet LP redemption requirements.
Regarding PayFi assets, Huma's business model focuses on cross-border payments and prepaid credit card services, both of which belong to payment transaction financing. The key difference between payment transaction financing and trade finance lies in their sources of risk and the flow of funds. Invoice financing essentially involves obtaining funds in advance by pledging accounts receivable, with repayment dependent on whether the buyer can pay on time in the future, thus involving certain uncertainties and credit risks. Payment transaction financing, on the other hand, is based on funds that have already entered the financial system. Due to the time required for cross-account, cross-bank, or even cross-border settlements, the funds that have entered the financial system are relatively safer. Huma helps clients improve capital efficiency during the settlement period by providing advances for payment transaction financing.
In cross-border payments, Huma's subsidiary Arf (@arf_one) provides T+0 or T+1 rapid settlement services, helping licensed payment institutions address the pressure of pre-funding, charging a few basis points (BPs) daily; in the credit card business, Huma achieves same-day settlements with merchants, which is currently executed by third-party partners including Raincards. According to official statements, every time a business accesses the PayFi network for payments, they need to pay a daily fee (typically 6 to 10 basis points) until repayment. Additionally, due to the high frequency of liquidity repayments (usually within 1 to 5 days), the same funds can circulate multiple times a year. This rapid turnover generates a compounding effect, providing liquidity providers with strong recurring yield.
The core source of Huma's current annualized return of 10.5% is providing liquidity for real payment financial businesses, especially short-term pre-funding for cross-border payment settlements and credit card settlements, which account for approximately 80% of overall funds, with a lower limit on annualized returns of 12.5%. The remaining approximately 20% of funds are allocated to high-liquidity DeFi protocols, currently yielding around 7%; overall, the combined yield can reach about 11.4%, and after deducting operational and transaction fees, there is still an 11% yield, which can cover the 10.5% user returns. Even if all funds enter Classic mode, the platform still has a surplus. With institutional funds flowing into Huma 2.0, the proportion of PayFi assets is expected to increase, further enhancing overall returns.
In terms of capital costs, the capital cost of PayFi assets is 12.5%, while Arf, as an important partner of Huma, charges payment institution clients daily fees of 6-10 basis points, with annualized returns ranging from 15% to 25%. These clients are mostly licensed institutions that require long-term liquidity commitments, ensuring stability and sustainability in operations. The daily fees of 6 to 10 basis points are generally considered reasonable in the industry, as a single transaction in the cross-border payment industry often incurs transaction fees as high as 200-500 basis points; in comparison, the pre-funding costs are highly attractive to capital providers. Overall, Huma's revenue structure is built on real economic activities and payment needs, with transparent capital flow and clear purposes, a fee model that is competitive compared to industry standards, providing sustainability rather than a Ponzi structure.
Core advantages of Huma
Compliance: After merging with Arf, Huma has further solidified its compliance advantages. Leveraging Arf's compliance framework, Huma can provide liquidity support to licensed financial institutions globally while ensuring that all capital operations comply with international regulatory requirements.
Scale and first-mover advantage: Currently, Huma has processed over $4 billion in on-chain transaction volume, with the founding team expecting this figure to reach $10 billion by the end of 2025. Huma's products have extremely high customer stickiness; once clients establish a fixed partnership with Huma, it is usually challenging to switch to other protocols, especially newer ones, due to their higher uncertainty. Over time, the advantages of protocols joining later will gradually diminish in competition. Unless their fee models are sufficiently attractive or a stronger team joins this sector, Huma's first-mover advantage and position are difficult to replace.
Partners: Huma has completed two rounds of financing, raising a total of $46.3 million, with investors including Distributed Global, Race Capital, Robot Ventures, and other well-known VCs, as well as support from Lily Liu, chairman of the Solana Foundation, Circle Ventures (the company behind USDC), and the Stellar Development Foundation (focused on cross-border payments). These strategic partners not only provide capital but also further consolidate Huma's leading position in the PayFi field through technological collaboration and market resources.
Team background: Co-founder and CEO Richard Liu worked at Google for nearly eight years, responsible for several heavyweight projects such as Google Fi, and served as CTO at Earnin, the largest personal lending company in the US, accumulating rich experience in the payment and lending industry. Another co-founder and CEO Erbil Karaman was the head of user growth for Facebook's first billion users and also served as CPO at Earnin. Additionally, Chief Business Officer Patrick Campos is an expert in tokenized compliance. This team not only has exceptional capabilities in technological innovation but also deeply understands the pain points in payment financing, providing strong support for Huma's development.
About Arf
Huma and Arf completed their merger in 2024, maintaining independent brand operations post-merger: Huma focuses on capital end and needs beyond cross-border payments, while Arf continues to delve into cross-border payment demand. Arf is registered in Switzerland, regulated by FINMA, holding VQF licensing, primarily providing settlement services based on stablecoins (such as USDC) to licensed payment institutions globally, and does not directly serve end-users. Its clients are concentrated in developed countries such as the US, UK, France, Singapore, and the UAE, with all client funds stored in regulated Safeguarding Accounts, which can only be used for settlement purposes.
Arf obtains funds from Huma and provides real-time liquidity to payment institutions, addressing the pre-funding pressure in cross-border payments. The lending and repayment of USDC between Arf and Huma are transparently traceable on-chain. However, since the funds paid to clients are off-chain transactions, there are inevitable suspicions of black-box operations. To dispel doubts, Arf issues LP reports to investors monthly and undergoes audits by international accounting firms like PWC annually, with all operations conducted within a regulatory framework.
In risk management, Arf only serves licensed and highly rated (Tier 1 and Tier 2) financial institutions, with funding periods as short as 1-6 days. Clients must deposit end-customer funds into a Safeguarding Account and upload proof to receive liquidity support. In extreme cases, such as customer bankruptcy, Arf has a legal claim to the funds in these Safeguarding accounts. All funds are managed through an independent SPV – Arf Capital, and a 2% First Loss Cover is established from profits as a risk buffer. To date, Huma and Arf have completed over $4 billion in transactions without any credit defaults.
Insurance process for risk events
Arf executes strict risk control and insurance processes in the Huma protocol to maximize the protection of investor rights and reduce risks. Its insurance process for risk events employs a multi-layered protection mechanism: in extreme cases such as customer bad debts, Arf first compensates using a 2% First Loss Cover established from its own profits, which takes priority in absorbing losses to ensure the interests of capital providers are not affected. If the First Loss Cover is insufficient to cover losses, the PayFi Foundation will utilize its accumulated profits to provide further compensation. If these two layers still cannot fully cover the losses, the remaining risk will be borne by the capital pool, with all PST and mPST holders sharing the losses proportionally, irrespective of individual holding patterns or lock-up periods.
Participation method
Huma 2.0 offers users two participation modes: Classic mode and Maxi mode:
In Classic mode, users can earn an annualized return of 10.5% on stable USDC through deposits, while also receiving basic points rewards (Huma Feathers). The longer the deposit lock-in period, the higher the points multiplier, for example, locking in for 3 months yields 3 times points, while a 6-month lock-in results in 5 times points. This mode is suitable for users seeking stable returns.
Maxi mode focuses on maximizing points rewards without offering returns. Users can earn 5 times points rewards without a lock-in; locking in for 3 months yields 15 times points, and locking in for 6 months can reach the highest of 25 times points. This mode primarily attracts deep participants, encouraging long-term capital lock-up through high-multiplication rewards.
Users can also purchase PT/YT through the upcoming @RateX_Dex platform.
Participation link: https://app.huma.finance?ref=o6zFsl
Written at the end
PayFi is a real-world extension of Bitcoin's original vision of a "peer-to-peer electronic cash system." It inherits the technological values of being intermediary-free, more efficient, and cross-border accessible, while attempting to bring this concept into more complex enterprise-level payment and financing processes. Whether this model can go further will depend on three fundamental questions: Is the revenue model sustainable? Are the underlying risks controllable? Does the overall mechanism have scalability?
From the perspective of the sustainability of the revenue model, Huma's income primarily comes from real cross-border payments and short-term pre-funding businesses such as credit card settlements, with clear capital flow and a competitive revenue and fee structure compared to industry standards. This revenue model, based on actual enterprise needs, distinguishes itself from the Ponzi structure reliant on new capital influx, providing a solid foundation for the platform's long-term stable operation.
In terms of controllability of underlying risks, Huma and Arf effectively reduce risks through multi-layered risk control and insurance mechanisms. The platform only cooperates with licensed payment institutions with high credit ratings, and all client funds are stored in regulated Safeguarding Accounts, with multiple safeguards such as First Loss Cover, PayFi Foundation margin, and PST and mPST pool write-offs. Additionally, Arf regularly publishes LP reports and audit information to maximize transparency.
Regarding the scalability of the overall mechanism, Huma currently achieves nearly 100% capital utilization. In the future, with the continuous expansion of high-quality payment institution clients and the ongoing enrichment of business scenarios, Huma has the potential for further expansion. Meanwhile, they remain open to new fields such as trade finance, but will insist on cross-border payments as the core business to ensure a balance of risks and rewards during the expansion process, which particularly tests the capabilities of BD.
The emergence of Huma shows us that cryptocurrencies are gradually stepping out of their niche, truly providing solutions for real-world financial needs, rather than merely self-circulating within the industry. This deep connection with the real economy is an important step for the maturity of the crypto industry.
Author: @rubin_2810
