Mark Mercatali All notes

Company overviewPayFi3 min

Huma Finance — pre-funding & credit system (Nov 2026)

Huma is a PayFi network that replaces nostro pre-funding with short-term stablecoin settlement credit to licensed payment institutions.

One-line

Huma is a PayFi network that replaces nostro pre-funding with short-term (1–6 day) stablecoin settlement credit to licensed payment institutions, funded by on-chain LPs (Huma 2.0, permissionless, PST on Solana) and permissioned investors (Huma Institutional). Origination and underwriting run through Arf, a Swiss-regulated affiliate that merged with Huma in 2023.

Pre-funding: the problem and the replacement

  • Problem: cross-border PSPs keep cash pre-deposited in destination countries (≈$4T globally per Circle) because SWIFT/correspondent rails are slow.
  • Huma/Arf flow:
    1. PSP receives a payment order, requests liquidity for a pre-agreed corridor.
    2. Arf sends USDC straight to the PSP’s payout partner.
    3. Payout partner pays recipients same-day from local treasury.
    4. PSP repays principal + fee in 1–5 days once its own funds land; the limit revolves.
  • Pricing: per-day bps on drawn amount (~8–10 bps per use cited in 2024); fee capture ~11 bps of throughput (Q2 2026).
  • Economics come from turnover, not rate: ~4.3–4.5 cycles/month (H1 2026). Short tenor × high reuse ≈ 8–9% annualized gross fee yield.
  • Other flows on the same rail: card settlement (Rain), merchant payouts (Amazon/Azure sellers), trade-finance receivables, remittances over bank holidays, CPN integration.

Credit system (Huma Institutional protocol)

Three pool/credit types:

  • Revolving credit line: EA-approved limit, draw/repay freely (drawdown()).
  • Receivable-backed credit line: each draw needs an approved receivable NFT; available credit = receivable × advance rate (<100%) (drawdownWithReceivable(), NFT transferred to the contract).
  • Receivable factoring: advance against a single invoice.

Evaluation Agent (EA) = underwriter:

  • Sets per-credit: limit, duration (monthly/quarterly/semi-annual periods), yield APR, committed amount (yield charged on commitment if utilisation is lower), start date, revolving flag.
  • Pool-level: late-fee APR, minimum principal rate per period.
  • Approves receivables (or auto-approval), restructures (APR, limit → 0 to freeze, extend term, waive late fees), declares default after grace period.
  • Skin in the game: must put min junior capital (liquidityRateInBpsByEA) and fund first-loss reserve with the Pool Owner.
  • Underwriting itself is off-chain (Arf credit engine: traditional and alternative data, in-house score). On-chain is the lifecycle and accounting.

Capital stack / loss waterfall:

  1. First-loss covers (up to 16 layers): borrower collateral → insurance (future) → Pool Owner/EA reserve. Typically 2–10% coverage; payout = min(default × rate, cap). Admin fees flow into cover until it is full.
  2. Junior tranche (max senior:junior e.g. 4:1 → senior safe until >20% loss).
  3. Senior tranche: fixed yield or risk-adjusted (a % of senior return shifts to junior).
  • Recovery flows back in reverse: senior → junior → first-loss.
  • 30/360 or per-second accrual; yield manager supports front/back-loaded or subscription fees.

Liquidity/redemption:

  • Institutional: epoch-based, senior first pro-rata, junior only if ratio holds, rollover.
  • Huma 2.0: FCFS, usually <1 business day (avg ~14h H1 2026), SLA 7 days, global daily cap; instant exit via PST swap on Jupiter/Meteora. PST used as collateral (Kamino, Morpho, Fluid).

Numbers (H1 2026, Blockworks report)

  • Cumulative PayFi volume $14.96B; H1 $6.0B. Arf cumulative originations $7.56B.
  • Arf facility $70.5M → $150M; PST pool $181.8M.
  • Fees $6.68M H1; PST NAV accretion ~8% annualized. Maxi Mode sunset.
  • Claimed 0% defaults since inception (self-reported; loss data not disclosed).

Takeaways for building credit on-chain

  • The protocol is a “dumb” accounting/waterfall layer. Credit quality lives in an off-chain, regulated, KYB’d underwriter (Arf) with real-world recourse.
  • Yield is driven by tenor compression and turnover, not by high APR.
  • Receivables as NFTs plus advance rates are the main on-chain collateral primitive. Committed-amount pricing and EA restructuring powers are reusable design patterns.
  • Concentration risk: one originator (Arf), off-chain legal enforcement, and limited loss transparency.

Sources