Huma Finance is an income-backed lending protocol for people and businesses around the world. The protocol empowers partners and communities by providing a decentralized, transparent, and accessible financial infrastructure as well as a thriving ecosystem.

Currently, the DeFi ecosystem falls short when lending to real-world use cases where the real needs are – the 99%. DeFi mainly relies on the over-collateralization of a small sample of assets, which can lead to a concentration of wealth, as only those with significant amounts of collateral can access DeFi lending platforms. Huma believes this substantially limits the potential of DeFi and prevents it from achieving the goal of creating a more accessible and equitable financial system.

A key reason today’s DeFi cannot support the 99% is that the ecosystem lacks the infrastructure to use the most critical input that all modern risk underwriting depends on, income (cash flow). Income-backed lending is a type of loan that is approved based on the borrower's income.

Essentially, lenders look at how much a borrower earns and use that information to determine how much they can afford to repay each month. For example, when a business needs a loan to extend its runway or invest in its growth, the lender tries to understand their past and future revenue and lends against it. Similarly, when someone needs a mortgage, a car loan, or a credit card, the first thing the lenders ask for is the most recent income statements. Revenue and income are the most important ingredients in underwriting, as they are highly predictive of payback capacity. Lending based on payback capacity leads to responsible lending practices and helps avoid cases of over-lending that can push a borrower to default.

“Revenue and income are the most important ingredients in underwriting, as they are highly predictive of payback capacity.”

In the next decade, tens of thousands of institutions and billions of people will join Web3 ecosystems. They won’t have rich crypto asset portfolios initially to collateralize against, however, most of them will be creditworthy participants with diverse income portfolios. Hence, decoupling DeFi's potential from crypto assets is critical to unleashing more utility for the 99%.

Huma Protocol is designed to turn income into a first-class primitive that can be borrowed against. Income can come from various sources and exists in various shapes and forms. For people, the most common type of income has been their paycheck. The wide array of economic incentives across Web3 ecosystems enabled many more income sources, such as DAO payments, staking income, NFT royalties, GameFi rewards, farmed yield and more. The most common income types for businesses are invoice payments and subscriptions. Streaming payment contracts are starting to be used more often in B2B payments.

It is a non-trivial task to underwrite the different types of income, especially in a decentralized and automated manner. A DeFi protocol should have these four main capabilities to support income as a first-class primitive effectively:

• The ability to aggregate the income signals to form a comprehensive view of an income portfolio belonging to a business or a person in a privacy-preserving way.

• The ability to underwrite using these income signals along with other risk signals, on-chain or off-chain, to manage risk effectively.

• The ability to use future income as collateral to borrow against.

• The ability to orchestrate the end-to-end borrowing and lending process through smart contracts in an automated and transparent fashion.

Huma protocol is designed to provide all of these capabilities. Our next blog post will cover how developers can build various income-backed lending pools on top of Huma for people and businesses worldwide.

A powerful protocol without killer applications is not that valuable. Through partnerships with Circle, Request Network and Superfluid, we are also launching the first on-chain factoring market on Ethereum Mainnet and Polygon. Now, people and businesses worldwide can borrow against their outstanding invoices on Request Network and their payment streams on Superfluid. These invoices and payment streams are tokenized and used as collateral during the factoring process. The process takes less than a minute, demonstrating the power of income as a first-class primitive. Given the trillion-dollar factoring market in TradFi, we are excited about this first application and are working on launching more payment networks.

We will share this use case's design and implementation details in our third and last piece in the Huma intro series.

About Huma Finance: Huma Finance is an income-backed DeFi protocol and winner of ETHDenver 2022’s Decentralized Finance track. Huma is on a mission to onboard the next generation of DeFi users who want to use income for DeFi lending, allowing any individual or business to leverage DeFi regardless of their crypto holdings. Huma platform’s first product is Web3 invoice factoring, and their initial launch partners are blockchain payment networks Request Finance and Superfluid. Huma Finance is on Ethereum mainnet and Polygon.*

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To learn more about Huma Finance read our Whitepaper.