A guide to the Velo Anchor

Anchor. The word likely conjures up images of rough seas, rusty chain links, and heavy cast-iron plunging into the ocean depths to stabilize a drifting vessel. Well, in the same way that an anchor provides critical stability to whatever it’s attached to, the concept of a “Velo Anchor” in the Velo ecosystem holds just as much weight.

So what exactly is a “Velo Anchor”?

A Velo Anchor, put simply, is a regulated financial institution that bridges the gap between traditional payments networks and the Velo Protocol, with each performing core functions that ensure the health and viability of the Velo Network.

In practice, imagine that someone in Paris, France wants to send money to the United States. This person can deposit fiat money (e.g. EUR) to our European sending anchor (the “on-ramp”), doing so via his/her bank account or any other accepted payment methods. This sending anchor, already connected to the Velo protocol, will then convert this fiat currency into a Velo Digital Credit (vEUR), pegged 1:1 to the EUR it represents and collateralized by VELO Tokens.

This fiat conversion into Velo Digital Credits allows the vEUR to be converted to any other asset on the network (e.g. vUSD) and to reach the receiving anchor’s wallet in the US, in about 5 seconds. The receiving anchor in turn will then convert the received Velo Digital Credits into local fiat (USD) to disburse the funds to a recipient in the US (the “off-ramp”). Et voila! You’ve just witnessed a Velo Anchor in action.

We like to think if the Velo Network is a highway, a Velo Anchor is both your on and off ramp.

Anchors themselves can range from banks, credit unions, money service businesses (MSB’s), cryptocurrency exchanges or licensed fintech companies, but no matter the type, there are five core functions that the concept of a Velo Anchor covers. These include:

• Onboarding customers
• Accepting fiat from customers and/or dispersing fiat to customers
• Issuing Velo Digital Credits
• Converting fiat to Velo Digital Credits and/or Velo Digital Credits to fiat
• Sending and/or receiving Velo Digital Credits between one another

An anchor on the Velo Network can perform one or all of these functions; they are only limited by their capabilities. So now let’s take a look at these functions in more detail…

Onboarding Customers

The first function performed by a Velo Anchor, while seemingly straight forward, is the gateway to our trusted network: diligently onboarding customers. Extending to both retail or business customers, this involves performing the proper compliance checks and customer due diligence (“Know Your Customer” , “Know Your Business”etc.) and ensuring adherence to:

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

As the old adage states: “Think globally, act locally” and when it comes to the nuances of local governance and how it aligns with international regulatory standards, we ensure every Velo Anchor is leveraged for their frontline expertise.

Velo’s firm focus on regulatory adherence will always be a vital tenet of our operational ethos, and with the help of our Anchors, we are positioning ourselves to become the most trustworthy and regulatory-friendly network in operation.

Accepting fiat from customers and/or dispersing fiat to customers

Moving on to the second anchor function, and where the tangible benefits begin: accepting and dispersing fiat to and from customers.

The transformational power of the Velo Network, especially when applied to cross-border remittance, is immense. Cheaper, faster, more secure — these are the critical ingredients required to improve the extraordinarily fragmented and confusing international payments market most people experience today. But how can your average customer leverage these blockchain benefits when sending money overseas? Especially if they only have fiat in their possession? Enter stage left, the Velo Anchor.

A Velo Anchor facilitates the “on” and “off” ramping of a customer’s fiat into the Velo Network by bridging the local banking system to the blockchain, either through accepting fiat deposits from the sending customer or remitting/ disbursing fiat to the recipient customer — all happening locally and thus with minimal overhead.

No matter the direction of the transfer, when sending money through the Velo Network there will always be a Velo Anchor “bookending” the flow of funds and aside from the regulatory and knowledge benefits these local experts bring, what this truly translates to is a seamless transition from fiat and traditional payment networks, to the speed and innovation of digital assets and the blockchain.

Fiat goes in, fiat comes out and amazingly, it all happens in about 5 seconds. Lighting fast!

So the on and off ramping of fiat via an Anchor is pretty straightforward, but what about the magic in between? Let’s continue…

Issuing Velo Digital Credits

The next core pillar in the role of an anchor: issuing what we know as “Velo Digital Credits”- the primary mechanism for interoperability, scalability and liquidity on the Velo Network.

Velo Digital Credits are price-stable assets pegged 1:1 to local currencies like USD, EUR, CHF etc., and they enable the seamless transfer of value across the blockchain. They are in essence the stable coins of the Velo ecosystem.

Every anchor on the network has the ability to create, on-demand, an amount of Velo Digital Credits by first locking VELO tokens as collateral. For the uninitiated, VELO tokens are our utility tokens that grant access to the Velo network, however they also serve as a super-guarantee, acting as a collateral layer that backs every transaction. VELO Tokens are either pre-purchased or purchased as needed.

Once the VELO Tokens are locked, the anchor can “mint” the equivalent amount of Velo Digital Credits in the currency of their choosing and either issue these digital credits to other anchors on the network (acting as a liquidity provider) or use the digital credits to facilitate their customers’ cross-border payments.

Worth noting too — thanks to Velo’s sophisticated Digital Reserve System and algorithmically rebalancing, all issued digital credits on the network maintain a 1:1 value link between the digital credit, the VELO Token and the original fiat deposit. Our network of anchors allows customers to send money without the risks associated with volatile settlement assets. You can breathe easy!

Converting fiat to Velo Digital Credits and/or Velo Digital Credits to fiat

Moving on, the fourth function of a Velo Anchor is critical to any cross border payment — converting fiat to digital credits and back again. After all, the transformational power of the blockchain can’t be leveraged until your fiat funds are on it!

Once a customer’s fiat deposit has been received by a Velo Anchor, the Velo Anchor can effortlessly convert those funds into an equivalent amount of Velo Digital Credits, pegged 1:1 to the original fiat. Importantly, this digital credit conversion also then allows for the transfer of value anywhere across the entire Velo Network.

And when it comes to converting the Velo Digital Credits back to fiat? Easy! The process is simply reversed. All Velo Digital Credits can be redeemed back to the corresponding fiat at any time, 1:1, ready for disbursement to the final recipient.

Of course, there is a high level of automation to this process but at its core, there you have it — taking fiat to digital credits and back again!

And that brings us to the final function of a Velo Anchor…

Sending and/or receiving Velo Digital Credits between one another

Last and not certainly least on the function round up, Velo Anchors possess the ability to send Velo Digital Credits to licensed counter-party anchors in other countries.

Much like traditional exchange between banks on the FX market, once our Velo Anchor has received fiat from their customer and converted that fiat to digital credits (as per the steps above), they can trade these Velo Digital Credits against the corresponding Velo Digital Credit for the currency desired, using liquidity provided from other Velo Anchors on the network.

It’s really that simple!

And as more Velo anchor’s are whitelisted and added to the Velo Network, they automatically become interoperable between all other anchors, so not only does this bring an economy of scale, but it also has the potential to connect thousands of end users across the entire network and the globe. That “highway” adds a few more lanes with each anchor!

So now we’ve reviewed all the critical components that make up a Velo Anchor, let’s recap the process end-to-end, using our example transfer of
EUR to USD one last time…

1. It all starts with an EU customer — they must first be onboarded with our EU Velo Anchor.
2. Once successfully onboarded, our EU customer deposits an amount of EUR fiat with our EU anchor; these are the funds that the customer wishes to transfer to USD;
3. Using the equivalent amount of VELO Tokens, our EU anchor then “locks” these tokens as collateral and as part of this collateralization, the EU anchor can then “mint” the required Velo Digital Credits (vEUR);
4. With the vEUR minted, the EU anchor now has a price-stable, virtual asset pegged 1:1 to the EUR fiat, that can be permissibly transacted across the entire Velo Network.
5. Using Velo’s Federated Credit Exchange, the EU anchor would then seek out the best rate between vEUR /vUSD and then purchase the vUSD from one of the multiple liquidity sources offered on the Velo Network;
6. Finally, the EU anchor would then send the purchased vUSD to the receiving US anchor, who in turn redeems the digital credits back to USD fiat and can now “off-ramp” the USD to the final recipient.

And that, my avid readers, is the Velo Anchor in full flight!

As you probably can imagine, the power of the network will only strengthen as more and more anchors join the Velo ecosystem. More anchors, means more currencies, means more liquidity and as each anchor’s business grows, the demand for issued Velo Digital Credits, and subsequently VELO tokens, will also grow.

It is this symbiotic relationship between anchors and assets that will ensure the health and security of the Velo Network for years to come.

And that brings us to the end of this quick dive into the world of a Velo Anchor and the functions they provide in the Velo Ecosystem.

If you’d like to find out more regarding the Velo Protocol, Velo Tokens and the Velo Mission check out the following resources:

Interested in becoming a Velo Anchor? Get in touch with us: marketing@velo.org