Stellar was created in response to the fact that today’s financial system doesn’t work for everyone. Today’s payment landscape is fragmented — it’s slow, costly, and based on models unchanged for decades despite significant advances in technology. This is due in large part to the existence of hundreds of different monetary systems around the world, which act as siloed databases that are unable to efficiently interoperate with one another.
To bridge these disparate local payment systems, Stellar was designed to make it possible to represent the world’s currencies — in the form of digital fiat tokens — on one decentralized ledger where they can all interoperate freely. This allows currencies to interoperate not only among each other, but also among all the wallets and apps that leverage the Stellar network to provide users a wide variety of cost effective financial services.
To facilitate moving value from the traditional banking system into Stellar and vice-versa, the network relies on what we call Anchors. Anchors play a fundamental role in creating a decentralized, interoperable global financial system.
To share more about the important role they play on the Stellar network, we hosted a webinar with Stellar Development Foundation Chief Architect, Jed McCaleb, and CEO, Denelle Dixon. We covered the basics of the anchor model, the opportunity for anchors, and the path to becoming an anchor. You can watch the full session below.
Here are a few of the highlights:
Anchors are regulated financial institutions, money service businesses, or fintech companies that offer specific services to the network. Anchors are unique in some ways, both in terminology and in function, to the Stellar network. But the easiest way to think of it more broadly is a stablecoin issuer. However, that is reductionist because for Stellar, it’s a lot more than that.
Anchors on Stellar serve two main functions. First, they issue one-to-one fiat-backed tokens — also known as stablecoins — and maintain fiat reserves equivalent to the value of the issued tokens, so users can redeem them back to fiat at any time.
But that’s not enough on it’s own. We also need a way for people to easily get those tokens. That’s where an anchor’s second function comes in: creating seamless fiat on/off ramps.
As providers of fiat on/off-ramps, anchors connect the Stellar network to the anchor country’s banking system by maintaining a service that handles regulatory processes such as KYC/AML and allows users to make quick and cost efficient deposits and withdrawals.
Anchors on our network can serve one or both of these roles. More often than not, today, they do both. These two roles can be provided by a single entity, or by multiple entities, in which case the fiat on/off-ramp becomes a reseller of the fiat token issued by the token issuer.
Stellar is paving the path toward a new global payment standard. That’s where we want to be by 2025. Anchors have an opportunity to become an integral part of this effort.
As the critical link between the Stellar network and the traditional banking system in their respective countries, anchors are positioned to leverage a variety of business models and monetization strategies, including deposit/withdraw fees, FX spread, seigniorage, and transaction fees.
Successful anchors offer anchor services as part of a larger portfolio of products and services that leverage the efficiency of Stellar to provide new, cost-effective financial services, ranging from API-based Banking-as-a-Service offerings, to cross-border B2B payments and invoicing, remittances, P2P payments, international payroll, or two-sided marketplace payments.
We’ve been hard at work for the past few years to streamline the process of becoming an anchor for the companies that choose to do it. For financial institutions - both banks and non-bank fintech companies -- the path to becoming an anchor is more straightforward today than ever before. It’s not exactly a checklist but here are the main considerations on the path to becoming an anchor:
If you’re interested in becoming an anchor or want to learn more, contact us.