Most decentralized finance (DeFi) lending is secured through collateral offered up by borrowers.
Billions of dollars are currently locked in DeFi lending protocols like Aave, MakerDAO and Compound. These applications are only useful for the richest 1% of crypto users, as large sums of capital are needed to take out loans.
Enter Huma Finance, a startup that creates income-backed DeFi loans, using off-chain data on a person’s income to qualify them for crypto loans.
Huma Finance claims to make DeFi lending accessible to everyone — an idea that resonated with many developers who participated in a hackathon ahead of ETHDenver.
Huma Finance co-founders Erbil Karaman and Richard Liu explained how the company can bring DeFi lending to the people that need it most:
“Huma is an income-backed DeFi protocol for the 99%. There’s a huge global unmet capital need for small businesses and people; local institutions can’t meet their needs, and they can’t get loans in crypto because they’re only built for whales that can stake their assets. We built a protocol where different lending businesses can be launched to serve this unmet need in emerging markets. Invoices they get off-chain can be put on-chain and be brought to life, being utilized through capital markets in DeFi.”
KryptoKredit, a startup building on top of Huma Finance, was a hackathon winner. The company allows users to earn an on-chain credit score for their cash transactions.
During KryptoKredit’s presentation, the team acknowledged the low accessibility to credit. Only 23% of people currently have access to credit, while many more deal in cash. By using Huma Finance, vendors and payers can be incentivized to bring cash transaction data on chain, allowing for anyone with access to the internet to build a credit score.
There’s clear interest from developers on Ethereum to make lending more accessible to those that need it most, which Karaman elaborated on during the interview:
“We just announced our $8.3 million seed round, and we have over 20 other builders already creating use cases on Huma Finance,” Liu added, “We launched last Thursday, and the message was well received; people felt it just makes sense. I didn’t expect so many people to build with us. So many people came to our booth, I lost my voice.”
Karaman chose to build in web3 rather than a traditional fintech solution because came down to decentralization, infrastructure, and incentivization mechanisms:
“We feel there’s a huge global need for these kinds of services. It’s hard to serve these needs going through traditional institutions, and we saw there’s a huge opportunity to build these technologies using web3. We came to ETHDenver last year and won the DeFi track Hackathon, and since we got so much support from the community, we kept building,” Karaman told Benzinga.
“Compound and Aave are asset-backed protocols. But in real life, everything uses future income to qualify for loans. That primitive income is missing from web3. We built the stack from the ground up to understand different income sources, figure out the mechanisms to tokenize them, then enable the pools for people to build for different use cases,” Liu says.
From a high level, Liu explains how income can be tokenized via NFTs, allowing for use cases throughout Ethereum’s ecosystem:
“We’ve launched with on-chain partners SuperFluid, Circle, and Request Network, and they mint the payment stream as an NFT,” Liu says. “Whoever owns the NFT will own the income stream. Say you have an invoice for $5,000, it can be tokenized as an NFT and the owner of the NFT has rights to the payments from that invoice.”
Ethereum‘s foundation is built on permissionless, trustless, and immutable concepts that may be most impactful for the unbanked and underprivileged demographics. Today, the industry is stereotyped by the concentration of wealth the technology has created, yet builders are most excited about the innovation helping the 99%, leveling the playing field by creating a more accessible ecosystem. Without these builders, crypto stands a slim chance of becoming a ubiquitous financial technology.