Current financial systems were built for the past, not the future. We need new payment systems that are scalable, instantaneous, programmable, and borderless.
Main conclusions
Huma pioneered an open framework for the PayFi Stack, divided into six layers to facilitate payment financing solutions globally.
Transaction layer: high-speed, low-cost blockchains (L1s and L2s) ensure transaction efficiency and security.
Coin Layer: Stablecoins and yield-bearing coins facilitate seamless, stable, and compliant payments.
Custody Layer: Advanced solutions like MPC and smart contract-based custody manage secure asset ownership and real-time settlements.
Compliance Layer: Integrates global regulations using on-chain identity to ensure regulatory adherence.
Funding Layer: Connects capital with demand through transparent tokenized assets and risk management on the blockchain.
Application layer: Provides the infrastructure to build intuitive and compliant financial applications using the capabilities of the stack.
In most regions, money is moving more slowly than expected. Even in the "hyperconnected 2024," long settlement times, high transaction fees, and limited access to credit are still the norm. Traditional financial systems, designed in an era of centralized banks and static infrastructure, struggle to keep up with the growing demands of a hyperconnected global economy.
We need a new financial paradigm that reflects modern realities—one where payments and financing are instant, programmable, and accessible to everyone, everywhere. PayFi is that paradigm.
Payment finance enables businesses and consumers to access the money of the future today. PayFi uses blockchain technologies to revolutionize payment finance, enhancing existing markets and unlocking new innovations.
The scale of the payments financing market is immense. For example, the credit card industry, where merchants receive funds much earlier while consumers pay, supports a market exceeding $16 trillion. Trade finance drives global commerce with a $10 trillion market. Furthermore, an estimated $4 trillion is blocked in pre-funded accounts worldwide, tying up capital that could be used more productively.
As exciting as this vision is, it is fraught with challenges. Moving financial operations on-chain requires overcoming issues such as the lack of global compliance frameworks and the technical complexity of blockchain networks. Without an open and standardized framework, this transition could result in siloed ecosystems, slowing adoption and innovation.
Over the past 40 years, the OSI model has laid the foundation for consistent, interoperable standards that have enabled exponential growth in technology. While the OSI model helped govern the Internet of Data, we are now entering an era defined by the Internet of Money.
Huma pioneered an open PayFi Stack, inspired by the OSI model, for the world to use and build upon.
The PayFi Stack, like the OSI model, is designed to be an open and modular system that provides a common language and framework for building financial applications on a blockchain. Its goal is to ensure that future innovations, such as real-time payments, decentralized lending, or asset tokenization, can seamlessly integrate into this ecosystem.
What is PayFi Stack?
Huma's PayFi Stack is a technology framework for optimizing blockchain-based payments finance and overcoming the limitations of TradFi systems by creating an open, modular stack that revolutionizes payments finance.
Just as the internet transformed communication and information sharing, PayFi seeks to reshape the way money circulates, enabling real-time transactions, programmable payments, and accessible credit. And the PayFi Stack, the architecture that powers it, is inspired by the OSI model of the internet.
A Peek at the OSI Model
Over the past 40 years, the OSI model has laid the foundation for consistent, interoperable standards that have enabled exponential growth in technology. While the OSI model helped govern the Internet of Data, we are now entering an era defined by the Internet of Money.
Huma pioneered an open PayFi Stack, inspired by the OSI model, for the world to use and build upon.
The PayFi Stack, like the OSI model, is designed to be an open and modular system that provides a common language and framework for building financial applications on a blockchain. Its goal is to ensure that future innovations, such as real-time payments, decentralized lending, or asset tokenization, can seamlessly integrate into this ecosystem.
The OSI model standardizes how different systems communicate over the internet. It consists of seven layers, each with a specific function—from physical data transmission to applications like web browsers. This modular approach ensures that any two systems, regardless of their origin or platform, can communicate and exchange information seamlessly.
Here's a quick overview of the seven layers of the OSI model:
Physical layer: Manages the physical hardware (such as cables) that transmits raw data.
Data link layer: ensures data transfers between adjacent network nodes.
Network layer: Deals with routing data between networks.
Transport layer: manages the reliable transmission of data between devices.
Session layer: establishes and maintains communication sessions.
Presentation layer: Ensures that data is presented in a readable format (such as encryption/decryption).
Application layer: Here, users interact with applications (such as a web browser).
Each layer in the OSI model builds on the layer below it, ensuring that systems can cooperate without needing to understand the complexities of the entire communication process.
Like the OSI model, the PayFi Stack divides financial operations into modular layers. Each part of the stack focuses on specific tasks (such as transaction processing, compliance, custody, etc.), allowing developers, enterprises, and financial institutions to build applications on top of it without having to reinvent the wheel.
The PayFi Stack’s primary goal is to replace slow and expensive financial infrastructure with one that is fast, programmable, and borderless.
With the support of Solana, Stellar, and Circle, Huma launched the PayFi Stack in July 2024—a structured, six-layer model to guide ecosystem development. The PayFi Stack is designed to support existing financial markets and new Web3 innovations.
The six layers of the PayFi Stack encompass the following:
Transaction layer
Coin layer
Custody layer
Compliance layer
Funding layer
Application layer
1. The Transaction Layer
The Transaction Layer is fundamental, encompassing both Layer 1 (L1) and Layer 2 (L2) blockchains. It manages the network's main characteristics: throughput, latency, transaction costs, and security.
Scalability is a pressing challenge here. High-throughput, low-latency networks like Solana and Stellar excel in PayFi use cases because they offer unparalleled transaction speeds (block times of approximately 400 milliseconds) and low fees, both essential for micropayments and real-time financial applications.
The transaction layer ensures that financial transactions on PayFi meet the stringent requirements for mass adoption, providing a solid framework for the other layers to build upon.
Key technical considerations for this layer include consensus mechanisms, completion times, and data availability challenges. Developers working here must optimize performance while ensuring that security and decentralization are not compromised.
2. The Monetary Layer
The Monetary Layer deals with digital currencies used in transactions, particularly stablecoins, which provide price stability. Stablecoins like USDC and PYUSD are crucial for payments use cases, as they mitigate the volatility inherent in traditional cryptocurrencies.
This layer also integrates yield-bearing stablecoins (e.g., USDM) that can eliminate transaction costs while providing liquidity.
It ensures that monetary infrastructure complies with and integrates with global financial systems, including those in Europe, Singapore, and Japan. Innovations such as programmable stablecoins, which allow for the incorporation of conditions into transactions, are also a focus of this layer.
3. The Custody Layer
Custody is the foundation of DeFi. Traditionally, moving funds required physical transfers between custodians. PayFi Stack incorporates a custody layer that can leverage cryptocurrency custody solutions to meet diverse market requirements.
Different PayFi applications require different custody models. For companies and enterprises, shared custody is the norm for treasury management. Unfortunately, shared custody, in the traditional sense, delays fund disbursement and settlements.
However, shared custody in blockchain ecosystems is an advanced feature that allows multiple parties to have controlled access to assets without delays.
Therefore, T+0 settlements (real-time transaction settlement) are still possible without compromising security.
Solutions like Fireblocks and Cobo offer institutional-grade custody, employing multi-party computation (MPC) to ensure secure key management. In contrast, decentralized custody methods like Polyflow utilize smart contract-based security, allowing for greater flexibility and programmability.
A crucial function of these custody solutions is to manage both on-chain and off-chain assets in a way that ensures data integrity, while also providing features such as programmable asset locks and customizable authorization mechanisms.
4. The Compliance Layer
The Compliance Layer is crucial to ensuring regulatory compliance, especially for stablecoin payments operating in highly regulated environments. This layer addresses jurisdiction-specific requirements such as KYC (Know Your Customer), AML (Anti-Money Laundering), and stablecoin licensing.
For example, Europe has been progressive in implementing the MiCA (Markets in Crypto-Assets) regulation, which provides a regulatory framework for crypto assets. Regions like Singapore and Japan have also developed specific rules for stablecoins that facilitate wider adoption.
This layer integrates compliance APIs that handle real-time checks, ensuring every transaction is compliant without sacrificing speed or user experience.
5. The Funding Layer
The Financial Layer is the core of PayFi, connecting capital demand with supply. It enables the structuring, risk assessment, and pricing of financial assets on-chain. Traditionally, this process is opaque, but blockchain introduces transparency by making transaction data publicly available.
In DeFi, the securitization of real-world assets (RWAs) involves creating tranches—such as junior and senior debt tranches—based on risk profiles. These assets can be packaged into financial instruments such as bonds or Special Purpose Vehicles (SPVs). Through smart contracts, PayFi can automate risk assessment by using oracles to provide real-time market data. This allows for more transparent asset pricing and structuring than in conventional finance, where these operations occur behind closed doors.
Security remains a key concern here, and cryptographic concepts like zero-knowledge proofs (ZKPs) are being explored to balance privacy with transparency, especially for sensitive financial data.
This layer involves advanced smart contract design, configuration of secure data feeds (oracles), and integration with risk models that can dynamically adjust based on market conditions.
6. The Application Layer
The Application Layer is the top layer of the stack, allowing developers to build user-facing financial applications. This can range from payment gateways to decentralized lending platforms and financial management tools.
Applications built on this layer can leverage the lower layers for security, speed, and compliance. For example, DeFi platforms can use PayFi's infrastructure to offer cryptocurrency-to-fiat payments or instant credit facilities.
This layer must also handle the user experience (UX), making complex financial transactions simple and intuitive for end users. Developers must consider aspects such as account abstraction, multi-signature wallets, and decentralized governance.
The challenge for developers at this layer is to create applications that are powerful and easy to use while maintaining high standards of security and privacy.
The future is built using the PayFi Stack
Just as the OSI model defined how data is governed and transmitted across the internet, the PayFi Stack paves the way for defining financial transactions on the blockchain. It ensures that as we continue to develop the Internet of Money, we have the standards needed to support scalable, secure, and efficient financial solutions.
Huma continues to develop the PayFi Stack with the support of industry leaders such as the Solana Foundation and Stellar. Through events like the PayFi Summit and informative articles, Huma will continue to build knowledge and awareness among developers and builders to accelerate innovations in the payments system.
