Anchor Basics

Anchors Connect Stellar to the Traditional Banking System

Today’s payment landscape is fragmented — each region has its own payment scheme (ACH, SEPA, SPEI, etc.) and they’re not interoperable. That's why we’re stuck with outdated systems like SWIFT and the correspondent banking model.

To bridge these disparate local payment systems, Stellar makes 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 anchors, which are regulated financial institutions, money service businesses, or fintech companies that offer one — or both — of the following component services:

1. Issue fiat tokens: 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; and
2. Provide a fiat on/off-ramp: 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 seamless deposits and withdrawals.

These two components 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.‍

The Anchor Opportunity

Stellar is paving the path toward a new global payment standard. 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.‍

Requirements for Anchors

The Stellar Development Foundation is interested in speaking with high quality financial institutions and financial technology companies around the world that are able to meet or exceed the following criteria:

When issuing assets

• All customer deposits should be held 1:1 in reserve in insured accounts dedicated to stablecoin redemption;
• Issuers should engage a third party to audit whether the stablecoins are backed one-to-one with fiat and whether the fiat funds are held in dedicated accounts;‍

When creating an on/off ramp

• Deposits and withdrawals should be processed through local domestic payment rails (ACH, SEPA, SPEI, etc.), not via wire transfer
• Deposit and withdrawal flows should follow Stellar ecosystem standards to allow for seamless interoperability between wallets and anchors across the network, as described in our developer documentation
• Anchors should maintain a customer support function to ensure customer queries and/or problems are resolved in a timely manner
• Anchors should maintain a comprehensive AML policy and program, including the ability to perform KYC checks on new customers

For all locations where an anchor makes their services available, they must comply with:  

• Regulatory, registration, and licensing obligations to perform the anchor’s financial and money transmission services
• Financial crimes, anti-money laundering, and counter-terrorism obligations  
• Data privacy rules and regulations;
• Industry standard cybersecurity practices;

Anchors also need to comply with U.S. sanctions.

Examples of active anchors on the network:

• Tempo Money Transfer (EURT)
• Cowrie Integrated Systems (NGNT)
• Settle Network (ARST)
  

Becoming an Anchor is Easier Than Ever 

Because Stellar was designed for the express purpose of tokenizing fiat currencies, issuing stablecoins is a native feature of the network — no smart contract scripting required. 

Launching a seamless fiat on/off-ramp is also a streamlined process thanks to widely adopted ecosystem standards and a dedicated suite of tools designed to help anchors launch deposit and withdrawal flows that seamlessly interoperate with all wallets and apps in the ecosystem.

Thomaz Teixeria, co-Founder at nTokens, one of the newest anchors to join the network, says: 

Using Polaris and the SEP24 demo client, we were able to take our BRL anchor service to production in less than three months. The newly released validation suite helps us ensure that we're always up to spec as we begin onboarding users.

Get in touch with us to learn more about becoming an anchor on Stellar and how the Stellar Development Foundation can help: [email protected]