Global liquidity for real-time payments with Arf and USDC

Navigating the prefunding challenge

Cross-border payment companies typically depend on traditional banking rails, such as correspondent banks and SWIFT, for global transactions. This process can take days for the funds to reach the destination country, conflicting with the expectation of many senders for same-day receipt by their recipients. To overcome this, providers pre-deposit funds in the destination country, a method known as prefunding, ensuring availability for same-day payments.

However, prefunding has its downsides: it locks up working capital, limits the growth of the companies, and introduces financial risks. With an estimated $4 trillion tied up in prefunded accounts globally, the payments industry is in pressing need of more efficient liquidity solutions.

Transactional daily liquidity with USDC

Arf Liquidity is a transactional, stablecoin-backed liquidity solution designed to improve the efficiency of cross-border payments. By using stablecoins and sending international payments on the blockchain, Arf circumvents the often slow and expensive process associated with traditional banking rails including SWIFT and correspondent banks, and delivers a better experience for its clients. 

First, Arf onboards their cross-border payment companies by assessing their business operations and financial health to determine creditworthiness. Based on this assessment, Arf customizes transactional and revolving daily liquidity, repayment terms, and applicable fees. Arf utilizes a combination of traditional and alternative data, a proprietary credit engine, and an in-house credit score to allow for optimized risk-adjusted pricing and providing Arf's clients with a customized and streamlined financial experience.

When a cross-border payments company receives a new payment order, it relays to Arf for liquidity in the pre-agreed corridors. Arf immediately sends USDC on their behalf to the payout partner of the payments company. The payout partner accepts USDC as settlement currency and starts facilitating same-day payouts to recipients from their own local treasury. The client repays the liquidity and any applicable fees to Arf in 1-5 days. Once repaid, the liquidity is reinstated, allowing the cross-border payments business to process new payments on a revolving basis. 

Arf partners with Circle to leverage USDC, a secure, transparent, and fully-reserved digital dollar, for issuing liquidity in real-time. By sourcing USDC via a Circle Mint account, Arf achieves faster, more cost-efficient transactions compared to third-party alternatives, delivering value to their clients while maintaining compliance throughout the transaction journey. In addition to speed, the transparency of on-chain stablecoin settlement helps Arf manage its operations efficiently. Because stablecoins settle on the blockchain, financial activities, including liquidity provision, repayment and overdue payments, are accurately represented and fully transparent. Lastly, stablecoin settlement through USDC eliminates the need for financial intermediaries such as correspondent banks, providing cost savings to Arf and its clients. 

*Circle Ventures, an affiliate of Circle Internet Financial, LLC, has invested in Arf.

Since the publication of this case study, Arf has merged with Huma, a leading tokenization platform for real world impact. The main goal of the merger is to develop RWA-backed, bankruptcy-remote, stablecoin based lending vehicles, not only for web3 world but also for traditional lenders and asset management companies worldwide.

Circle Ventures, an affiliate of Circle Internet Financial, LLC, has invested in Huma.