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【Suggested to Bookmark】Understand the recently popular Huma Finance with 3 images!

Previously, I wrote three articles about Huma Finance, analyzing the project step by step from shallow to deep.

Here, I will summarize the core viewpoints of the previous articles, which can be systematically summarized with three images. Everyone is welcome to discuss!

1. What is the background of Huma Finance's project?

The founder of Huma Finance is a serial entrepreneur with extensive experience in the payment field.

Huma Finance's business model is very healthy, having established its own stable income and cash flow.

The founder of Huma Finance clearly stated that a significant portion of Huma's tokens will be directly allocated to the community.

Reliable team background + stable business model + project landscape opening up = absolutely a major project!

Investing in a project is essentially investing in people. From the founder's interviews, one can sense their strong sense of belief; how could such a team not achieve good results?

2. What exactly is Huma Finance doing with cross-border payment financing?

Complete process: On-chain users lend funds → Cross-border payment institutions request loans → Cross-border payment institutions provide collateral → Cross-border payment institutions borrow USDC and execute payments → Cross-border payment institutions repay the loan.

Huma has built a lending platform where ordinary users act as lenders, providing sources of funds, while cross-border payment institutions act as borrowers.

In the cross-border payment scenario, the remitter pays the local currency A of country A. If using the traditional Swift settlement system, it takes 3-6 working days and incurs very high fees, involving exchange rate differences and currency conversion fees, usually between 1%-3%.

So, after the cross-border payment institution receives the payment from the remitter, rather than going through Swift, it uses USDC as an intermediary currency, borrows stablecoins on the Huma platform, and then directly converts USDC into local currency B in the target country B. This payment process can be completed within the same day.

Throughout the process, Huma provides short-term financing for cross-border payment institutions in the form of USDC, while the institutions need to find a third-party OTC service provider for one outbound and one inbound transaction.

Huma's entire operational process and business model are relatively clear.

Overall, Huma is building a PayFi platform and PayFi ecosystem. This project can be said to be a combination of practical and narrative projects, worthy of long-term attention.

3. Is Huma's operational model sustainable? What money does Huma actually make? What are the risk points for Huma?

In simple terms, Huma is a lending platform, but unlike on-chain lending platforms like AAVE, where both lending and borrowing are done by on-chain users, Huma targets ordinary on-chain users for lending, while the borrowing side consists of real-world enterprises.

This is why it is said that Huma is also an RWA project, encapsulating real-world assets into on-chain assets, allowing any user to participate without permission or KYC.

We can see that the key lies in the asset side: whether those borrowing the money are reliable, whether there are bad debts, and whether the platform can effectively control risks.

Huma's asset side is of high quality, primarily focusing on cross-border payment institutions, providing them with short-term financing.

First, there is equivalent collateral, meaning the local currency funds received by the payment institution need to be held in a regulated account;

Second, the payment institution has compliance qualifications;

Third, the repayment period is short, within 3-5 days, thus the risk is lower than long repayment periods.

Logically speaking, Huma provides a service like Swift, offering financing rather than the consumer loans or business loans commonly seen in P2P enterprises, which do not rely on the borrower's credit or long-term operation status.

To answer the initial three questions:

Huma's model is sustainable, with clear demand scenarios, and has been validated in Web2 companies;

Huma earns interest spreads, as cross-border payment institutions are willing to pay for faster and cheaper remittances;

Huma's risk points mainly lie in the security of on-chain contracts and the transparency of off-chain processes, and Huma needs to disclose more information.

Overall, Huma can be said to be a truly good project, worthy of early investment.

@humafinance @DrPayFi

《Discussing the Competitive Landscape of Mid- and Low-Tier Exchanges: How Can Smaller Exchanges Survive?》

In addition to top exchanges like Binance and OKX, our market also has a number of mid- and low-tier exchanges competing fiercely.

The competitive strategies of these exchanges mainly adopt two approaches:

First, they focus on altcoins and niche trading pairs;

Second, they concentrate on contract trading to attract high-frequency traders.

Let’s first talk about the first strategy:

Top exchanges (like Binance) tend to favor mainstream cryptocurrencies, while mid- and low-tier exchanges can attract early project supporters and speculators through a combination of niche spot and contract trading.

Coins that top exchanges cannot or are unwilling to list can be listed by smaller exchanges, thus mid- and low-tier exchanges still have significant room for survival.

Now let’s look at the second strategy:

Perpetual contracts and futures trading can attract professional and high-frequency traders due to high leverage (from 50x to 200x), resulting in high trading volumes and fee revenues.

According to CoinGecko, in 2024, global derivatives trading volume will account for about 79% of the cryptocurrency market, far exceeding spot trading.

Therefore, perpetual contracts are also a key business area for exchanges in fierce competition, and many smaller exchanges primarily focus on this sector.

We can take a look at the ranking of exchanges in the contract market:

We can see that the rankings in the contract market differ significantly from those in the spot market.

Recently, there was information about the established exchange BitMart @BitMart_zh launching a slippage protection plan, compensating fully for slippage ≥ 0.05%. This activity mainly targets USDT perpetual contract traders, reducing trading risks and boosting user confidence.

BitMart's competitive approach is quite representative.

To understand this competitive strategy, we can first understand what slippage is.

Slippage refers to the difference between the actual execution price of a trade and the expected price.

The loss from slippage varies depending on the trading scale and market conditions. For small trades, slippage may result in just a few dollars lost, but for large trades or high-leverage perpetual contract trading, slippage can lead to hundreds or even thousands of dollars in additional costs.

Especially in USDT margin perpetual contract trading, due to the leverage amplification effect, the impact of slippage can be further magnified, and a small mistake can erode profits.

Many people have a misconception that slippage only exists in decentralized exchanges (DEX).

In fact, whether in the liquidity pool model of decentralized exchanges (DEX) or the order book model of centralized exchanges (CEX), slippage issues are present.

Slippage in DEX mainly arises from the depth of the liquidity pool and the price curve, while slippage in CEX is closely related to order book depth and market volatility.

For CEX users, especially perpetual contract traders, BitMart's slippage protection plan provides strong assurance, allowing traders to feel more secure through the full compensation mechanism.

Through the example of BitMart, we can see where these mid- and low-tier exchanges are focusing their efforts.

In summary: they are building a “Paradise for Altcoins” and a “Paradise for Contracts” for traders, competing on the speed of listing coins and the trading experience of contracts.

Whoever can achieve these will secure a place in the market.

We can continue to monitor the competitive situation of mid- and low-tier exchanges.

The Bitcoin ecosystem needs a truly innovative and user-friendly stablecoin!

Bitcoin now needs to address this important proposition: how to turn Bitcoin into an income-generating asset?

1. Stablecoins are the biggest variable in the Bitcoin ecosystem!

First, they can reshape Bitcoin's functional positioning:

Bitcoin's high volatility makes it more suitable for long-term holding rather than daily payments. Stablecoins, backed by Bitcoin and pegged to the US dollar, provide price stability, allowing users to convert BTC into assets that can be used for payments, lending, or DeFi without selling.

Stablecoins transform Bitcoin from a single asset into an anchor point of the financial ecosystem.

Second, they can change user behavior:

Bitcoin holders often adhere to the HODL philosophy, unwilling to sell BTC for liquidity. Stablecoins allow users to obtain USD stablecoins by collateralizing BTC, meeting consumption or investment needs while retaining the long-term appreciation potential of BTC.

Stablecoins incentivize users to shift from “passive holding” to “active participation,” expanding the user base of the Bitcoin ecosystem.

Moreover, they can expand the ecological economic model:

The DeFi applications of the Bitcoin ecosystem (such as lending and liquidity mining) are constrained by BTC's volatility. Stablecoins provide stable trading mediums, enhancing the usability of Bitcoin assets in DeFi.

Stablecoins can transform the Bitcoin ecosystem from a “single asset-driven” to a “diversified financial ecosystem,” similar to the DeFi prosperity achieved by the Ethereum ecosystem through DAI and USDC.

2. What Bitcoin ecosystem USD stablecoins are worth noting?

Many projects have previously made attempts, but the core issues lie in the stability and liquidation risks caused by high-volatility collateral, the lack of transparency in cross-chain bridge security, the unclear revenue and governance mechanisms, as well as insufficient ecological integration and user positioning.

These issues limit the scalable application of stablecoins in the Bitcoin ecosystem.

The new player Mezo @MezoNetwork's MUSD overcomes the issues of DAII through mature technology, clear positioning, and low-cost strategies, emerging as a dark horse.

The three core issues of Bitcoin ecosystem stablecoins are: Where does the revenue come from? How to maintain the stability of the stablecoin's value? How to ensure the security of Bitcoin?

Let's take a closer look at how Mezo addresses these:

(1) Where does the revenue come from?

Mezo's revenue mainly comes from loan interest, liquidation penalties, minting/trading fees, and the potential appreciation of the mats points system (airdrop expectations).

Low interest rates and point incentives attract user scale growth, while liquidation penalties and trading fees provide stable income in high-volatility markets.

In the future, Mezo can further diversify revenue sources by optimizing the fee structure and governance mechanisms.

(2) How to maintain the stability of the stablecoin's value?

The design goal of MUSD is to be pegged to the US dollar 1:1, and its value stability relies on a combination of over-collateralization, dynamic adjustments, and liquidation mechanisms, drawing on the MakerDAO's DAI model but focusing on Bitcoin assets.

The single-collateral design aligns with the Bitcoin ecosystem but must address price volatility risks.

Mezo can further enhance stability by optimizing oracles and liquidation mechanisms, as well as expanding the application scenarios of MUSD.

(3) How to ensure the security of Bitcoin?

Mezo's core asset is the Bitcoin deposited by users (including BTC, tBTC, WBTC, etc.), and its security relies on the robustness of smart contracts, cross-chain bridges, and protocol governance.

Thesis's technical background and transparent operations add to its credibility, but cross-chain bridges and oracles remain potential risk points.

Mezo can further consolidate security through insurance mechanisms and community governance.

3. In summary

The USD stablecoin market in the Bitcoin ecosystem is currently primarily represented by MUSD (Mezo), and there are almost no other stablecoins clearly backed by Bitcoin and pegged to the US dollar.

MUSD fills the gap of USD stablecoins in the Bitcoin ecosystem, accurately capturing the behavior shift of Bitcoin holders from HODL to financialization by 2025.

If MUSD can break through in payment scenarios (such as cross-border remittances) and security, it is likely to become the “decentralized bank” of the Bitcoin ecosystem, promoting further development of the Bitcoin ecosystem.

We can continue to keep an eye on this.