Interview: flowie, ChainCatcher
Guest: Richard Liu, Co-founder & Co-CEO of Huma Finance
Compiled by: flowie, ChainCatcher
Editor's Note: During the Devcon event in Bangkok, the annual "DeInsight 2024" summit organized by the Web3 asset data platform RootData and ChainCatcher officially released the 《RootData: 2024 Web3 Industry Development Research Report and Annual Rankings》(click the link to view the full report and rankings).
The report provides a detailed analysis and interpretation of the development characteristics of the Web3 startup investment market in 2024, and also released the RootData List 2024. This ranking is the second annual selection launched by RootData after the first release in 2023, and its results are being closely followed by more entrepreneurs, investors, LPs and crypto enthusiasts.
RootData List 2024 covers five rankings, specifically: Top 50 Projects (Post-TGE), Top 50 Projects (Pre-TGE), Crypto VC Top 50 Institutions, Top 10 Angel Investors, and Top 20 Best CEOs.
ChainCatcher will release a series of articles to interview the projects and institutions on the RootData List 2024, seeking out the builders who have weathered the bull and bear markets and tracking the latest trends in Web3.
The guest in today's dialogue, Richard Liu, Co-founder & Co-CEO of Huma Finance, has been successfully selected for the RootData List 2024 annual ranking of Top 20 Best CEOs. Meanwhile, Huma Finance has been selected for the RootData List 2024 annual ranking of "Top 50 Projects (Pre-TGE)".
As a key player in the Solana ecosystem, PayFi is one of the hottest emerging concepts this year. The PayFi network built by Huma Finance is a leading PayFi use case in the Solana ecosystem.
Huma's PayFi network focuses on building a Payment Financing Layer, targeting the multi-trillion-dollar commercial payments, trade finance, and remittance scenarios.
Huma's core application Arf currently solves the prepayment problem through blockchain and stablecoins, processing over $2 billion in on-chain transactions. According to Richard Liu, Co-founder & Co-CEO of Huma Finance, the figure is expected to reach $3 billion in January.
The Huma Finance team has backgrounds from internet giants like Google and Meta. Richard Liu, an engineer by training, worked at Google for nearly 8 years and was involved in the creation of products like Google Trusted Stores and Google Fi. The startup he founded, Leap.ai, was acquired by Facebook (now Meta).
Later, while serving as CTO at the fintech company EarnIn, Richard Liu met Erbil and Ji, the other two co-founders of Huma, and together they founded Huma Finance in April 2022, completing an $8.3 million seed round in May 2022.
In September this year, Huma Finance also raised $38 million in a round led by Distributed Global, with participation from Hashkey Capital, Folius Ventures, Stellar Development Foundation, and TIBAS Ventures, the venture capital arm of Turkey's largest private bank İşbank.
In this interview, Richard Liu shared his insights on the understanding of PayFi, the positioning of Huma Finance, the key challenges in building the PayFi network, and the strategic plan for 2025.
1. ChainCatcher: How do you understand the concept of PayFi, and does it differ from the past narratives of crypto payments/Web3 payments?
Richard Liu: The "Financing" in Payment Financing simply means being able to prepay future money. For merchants, this means they can get their accounts receivable in advance as working capital. For individuals, it means they can use future income to meet current needs.
Financing makes the originally static cash flow more flexible. PayFi is using blockchain technology to better provide payment financing services, which can be making existing payment financing more efficient, or enabling applications that traditional finance cannot support, such as T+0.
Some friends say that PayFi is just focused on crypto payments, which I think is a big misconception. While crypto payments will certainly expand in the future, it is still a very small piece of the pie right now. Since there is already a huge market for traditional payment financing, such as the $16 trillion credit card payment market and the $10 trillion trade finance market, and Huma's current cross-border payment prepayment business is a $4 trillion-level huge market,
The biggest opportunity for PayFi is how to apply blockchain, stablecoins, etc. to traditional payment financing to make it more efficient and convenient.
2. ChainCatcher: What specific PayFi scenario is Huma doing? What market pain points have you solved?
Richard Liu:Huma can be seen as a network, with the core being the PayFi Stack we've released, which represents our understanding of the entire PayFi ecosystem. This ecosystem can be divided into several key layers from the bottom up:
The bottom layer is the Transaction Layer, composed of public chains, with Solana being particularly outstanding in this field, but not the only one, as there are other early-stage public chain competitors.
The second layer is the Currency Layer, mainly including various stablecoins, as the monetary layer to support the financial activities of the entire ecosystem.
The third layer is the Custody Layer, which becomes extremely important in payments, especially commercial payments. One Shared Custody that I'm particularly interested in can greatly increase transaction speed by changing the state of the fund controller without needing to move from one account to another.
The fourth layer is the Compliance Layer, which is an indispensable part of the PayFi ecosystem, and non-compliance will ultimately lead to failure.
On this basis, we further build the Financing Layer, allowing everyone to foresee future cash flows, and providing many opportunities to leverage blockchain to transform traditional finance, such as credit cards, financial management, and other applications that can be built on Huma Finance.
Currently, we are focusing on an application called Arf, which is dedicated to cross-border payment prepayment business.
In traditional cross-border payments, transferring from Singapore to Africa can take many days and be very expensive. Payment companies usually need to have partners in the recipient country and prepay around 20% to 25% of the monthly transaction volume. As the business expands, the prepayment demand and currency types will increase, which places a heavy burden on the payment companies.
Our platform solves this problem through the Arf application. We abstract all prepayments into a service and use stablecoins to complete instant transfers.
We conduct strict risk assessments on the licensed remittance companies we cooperate with, and once the cooperation is confirmed, we can provide prepayment services. When the remittance company receives a remittance request from the end user (both B2B and B2C), they first deposit the received tokens into a dedicated Safeguarding account, and then submit a prepayment request to Arf. Arf, after confirming that the funds are in the Safeguarding account, will transfer stablecoins to the remittance company's partner in the target location based on the demand. Once the recipient receives the funds, they will withdraw and transfer the money to the payee, and then notify the payer's payment company that the funds have been settled. At this point, the payer's payment company can use the fiat currency in the Safeguarding account to make a deposit and repay the stablecoins to us.
The entire process takes 1 to 6 days, and all our partners are licensed financial institutions. Currently, we have processed over $2 billion in on-chain payment financing, with no credit defaults, and expect to reach $3 billion in January.
3. ChainCatcher: What are the biggest challenges in building the PayFi network?
Richard Liu:I think there are a few key points:
First, you must have a certain compliance architecture to support the operation of the project. For example, under our compliance framework in Switzerland with VQF, we can use stablecoins to provide prepayment services to licensed financial institutions globally. We can only serve licensed financial institutions, not directly serve end merchants.
Secondly, the project requires huge financial support.
The real outbreak of the PayFi project requires the financial support of traditional finance, and the funds in the Crypto field alone are not enough. Today, RWA and PayFi are hot, but the vast majority of people are just dipping their toes in the water, and there are still very few institutions that have jumped into the water and started swimming. A successful PayFi platform must connect with traditional financial institutions. We are relatively ahead in this regard and have made some progress, but there is still a long way to go.
When the funds on the platform come from different channels, a key issue is how to integrate these funds and set up a reasonable architecture for risk management. We need to ensure that different investors can invest in the appropriate chanche according to their risk preferences.
Finally, it is risk management. In the Crypto field, risk control is extremely important. The overall risk management must be excellent, so that even if the project or company itself faces bankruptcy, the user's investment funds will not be affected.
Many RWA or PayFi projects only view it as a technical project when they enter the field, which is a misconception. In fact, risk management is more important than technology. Financial risk control is also more important than technical risk control.
Traditional finance has different pricing for different risks, and bad debts are not simply avoided. Unlike traditional finance, the Crypto field is extremely sensitive to bad debts and defaults. As soon as there are any signs of default, investors will immediately close their positions and withdraw. Therefore, for PayFi projects, at this stage, the focus should be on assets with relatively low risk, and the default rate should be as close to zero as possible. Although no one can guarantee that this can be fully achieved, we must strive to achieve this goal.
4. ChainCatcher: 2024 is about to end, what are your strategic plans for 2025?
Richard Liu:In 2024, our main task is to complete the acquisition of Arf and form a strategic partnership with Solana. As we enter 2025, we have several important tasks:
First, to jointly promote the education of the PayFi market with industry leaders. The PayFi Summit conference we successfully held with Solana in September this year will continue, and we plan to hold 6 events next year, gradually expanding the scale and inviting more people and projects to participate in the discussion.
Secondly, in terms of ecosystem growth, next year we will continue to deeply deploy in both the DeFi and TradFi fields.
As a project that can generate healthy, high-yielding RWA, we are very attractive to DeFi project parties. They will be happy to integrate with us. We will become a component in the DeFi Lego, attracting more participants.
At the same time, we are also attracting traditional financial capital, and we currently have several ongoing collaborations with traditional finance, but it will take time for them to be fully implemented. Our capital turnover is very fast, and we currently have more than $20 million in the pool, which is expected to reach $60 million by the end of the year and possibly $100 million by January or February next year. Our goal is to reach at least $250 million next year. Since our capital turnover is very fast, at least 50 times a year, this means that we will complete at least $1 billion in online transaction volume next year.
While obtaining a large amount of capital, we need to ensure efficient and low-risk deployment.
Third, to incubate more killer applications. In addition to Arf, next year we will continue to incubate the second and third projects, and ensure that they deploy at least tens of millions of dollars. These applications can be our own incubation, or they can be from third parties.
5. ChainCatcher: Huma has always been closely cooperating with the Solana ecosystem. What are your biggest feelings about the cooperation and construction in the Solana ecosystem?
Richard Liu:The biggest feature of Solana is that they do what they say.
For example, in marketing, we jointly promoted the PayFi Summit with Solana. Although Solana, as a giant company, usually has more say, they did not do so. Instead, they fully supported our work and mobilized a lot of resources to help us with the event.
The same is true in technical support. Our team's technical experience was mainly in the EVM field, and when we moved from EVM to Solana, we faced considerable technical challenges due to the different design philosophies of the two chains.
Solana sent two top-notch engineers to closely track our development process. They not only provided various suggestions, but also helped us avoid making directional mistakes in the development process.
Liquidity is the biggest headache for any RWA and PayFi project, and Solana has called on a lot of ecosystem resources to help us. A relatively high proportion of LPs were introduced by Solana.
6. ChainCatcher: The Huma team's technical background was originally more in line with EVM. During this Ethereum Devcon, how do you view the widespread questioning that the Ethereum ecosystem is currently facing?
Richard Liu:I have a technical background myself, and looking at our team's past background, EVM (Ethereum Virtual Machine) is actually very compatible with us. But I think that limiting the EVM ecosystem to just technology is not enough, but rather being able to integrate technology and ecosystem products, especially more diversified products.
EVM makes me think of Google. Google was originally a company that was particularly focused on technology, but its success later was that it had both technology and excellent products. I hope that more product thinking can be integrated on the EVM side.
