Global trade is a crucial driver of the modern economy, fueling both globalization and technological advancements. Standard Chartered Bank forecasts that global trade will expand by 55% over the next decade, reaching $32.6 trillion by 2030. However, there is a significant gap in trade finance availability, particularly affecting small and medium-sized enterprises (SMEs) in developing countries.

This article seeks to analyze the financing needs within global trade’s supply chain and explore how blockchain and tokenization technologies can address these challenges. By examining the real-world application of PolyFlow’s Supply Chain Finance, we can observe how the innovative PayFi scenario is developed to enhance supply chain finance solutions.

What is Supply Chain Finance

The supply chain is a global, comprehensive, and highly efficient organizational structure involving buyers, suppliers, manufacturers, distributors, retailers, and end users from different countries, all centered around core products or services. Supply chain finance is a financial service model based on the core enterprises’ credit within the supply chain. It integrates logistics, capital flow, information flow, and other data along with upstream and downstream enterprises.

Currently, the global supply chain finance market has surpassed $1 trillion and is projected to reach $3 trillion by 2025. Asia holds the largest share of this market, accounting for over 60%, while the market share in Europe and the United States is also steadily increasing. The market for products and services such as accounts receivable factoring, supply chain loans, and warehousing financing is expanding, demonstrating a trend toward diversified and personalized development.

Transforming supply chain finance through blockchain

The supply chain finance market holds significant value; however, the complexity of its value chain makes it challenging for all parties to synchronize their information needs promptly, leading to inefficiencies. Most critically, this financing model heavily relies on the creditworthiness of core enterprises within the supply chain, while small and medium-sized enterprises (SMEs) struggle to participate.

Ironically, these SMEs are the ones most in need of financing. According to the International Finance Corporation (IFC), there are 65 million SMEs in developing countries whose financing needs remain unmet. Despite being widely recognized, this crucial market segment has not received adequate attention.

As blockchain and tokenization technologies mature, an increasing number of projects are targeting this overlooked market segment with innovative solutions. Blockchain technology has the potential to transform the current landscape of supply chain finance by enhancing market access and providing liquidity, transparency, and accessibility. Additionally, it can streamline trade complexities, improve transaction process efficiency, and reduce information asymmetry.

Real-life case of PolyFlow

Let’s explore a supply chain finance scenario involving PolyFlow:

Buyer: Roam is a decentralized telecommunications operator that focuses on constructing a global open wireless network infrastructure using Web3 and Open Roaming technologies. It encourages user involvement in network development and data sharing through incentive mechanisms and innovative technologies. Roam offers users a variety of high-performance DePIN router devices to facilitate network participation.

Supplier: The DePIN equipment supplier manages inventory and plans the production of DePIN equipment based on Roam’s orders, with a typical production cycle of three months. In this scenario, Roam’s $1 million order is not fully paid upfront. Generally, an initial payment of 30% of the order amount is made.

Financing Needs: The DePIN equipment supplier must commence production upon receiving an order. However, the initial payment often falls short of covering the costs of raw materials, production line activation, and completing production. Therefore, the supplier needs to seek financing from a bank using Roam’s order as collateral.

Realistic Dilemma: The challenge is that Web3 projects like Roam, unlike traditional core enterprises, often struggle to secure bank credit or do not meet the bank’s credit qualifications.

Solution: PolyFlow addresses this by tokenizing Roam’s orders on the blockchain via a tokenized supply chain finance platform it supports. This approach leverages on-chain liquidity to raise funds for the supplier based on Roam’s order, meeting their financing needs.

As a result, a win-win situation is created. Roam can place orders with just an initial payment, the DePIN supplier can instantly obtain on-chain financing to support production, and on-chain liquidity providers can participate in supply chain finance tokenized assets to earn yields. Ultimately, this innovative integration of supply chain finance with blockchain technology has brought PayFi’s vision to fruition.

The Core Role of PolyFlow

PolyFlow plays a pivotal role in this supply chain finance scenario:

• Creating Liquidity: Traditional supply chain finance primarily involved financial institutions like banks. To increase liquidity and streamline operational efficiency, financiers require more diverse financing channels. Through PolyFlow’s tokenization platform, suppliers’ account receivables can be tokenized, enabling them to access liquidity via PolyFlow’s Payment Liquidity Pool. This approach meets suppliers’ financing needs while facilitating efficient value transfer and capturing on-chain liquidity.
• Credit Transmission: Typically, supply chain finance is accessible only to core enterprises within the value chain, often excluding smaller SMEs. PolyFlow’s Payment ID can help SMEs anchor buyers’ credit ratings, enhancing the overall resilience and liquidity of the entire supply chain while helping SMEs build a credit system on the blockchain.

Supply chain finance assets are categorized as private credit and have traditionally been accessible exclusively to large institutional investors and high-net-worth individuals. Through PolyFlow’s supply chain finance use case, liquidity providers can engage on-chain with those market-beating returns as incentives.

Tokenization widens the investor base, heralding a new era of growth and efficiency. Ultimately, it fosters global economic development and contributes to a more sustainable and equitable financial landscape.

Looking ahead, the tokenization of trade assets offers multiple advantages for various participants and process links in the complex scenarios of global trade, including 1) facilitating cross-border trade payments, 2) addressing financing needs among trade participants, and 3) utilizing smart contracts to improve trade efficiency, reduce complexity, and enhance transparency.

PolyFlow is progressively realizing these advancements.

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