Connect with us

Capital Markets

Stablecoin weighs Anchor for investing in economic growth

“Everything has a unit of value, except money,” says Anchor founder Daniel Popa.

Published

on

Anchor AG, a financial services company, is about to launch a dual-token stablecoin that is intended to give investors exposure to economic growth removed from the vagaries of currencies and commodities.

The company is calling for currency traders, hedge fund managers, and private investors to test its Anchor coin in advance of its inaugural listing on Japan’s digital exchange, Liquid, in September.

Anchor is domiciled in Zug, Switzerland. Its founder and CEO, Daniel Popa, is a serial entrepreneur who was born in Romania under its Communist regime but was raised in the U.S.

Most stablecoins are mapped to gold or a fiat currency,” he told DigFin. “But currencies are all depreciating, whether it’s due to monetary policy, quantitative easing, inflation, whatever. It doesn’t matter how you peg a currency when the U.S. dollar has lost 50% of value over the past 30 years [to gold] and 98% over the last century.”

Reimagining stablecoins

A relative latecomer to bitcoin, he wondered how a stablecoin could be created that would bypass inflation altogether. Other business interests kept him from commercializing his ideas until 2018 when he devoted his efforts fulltime to what became Anchor.

The company has developed a proprietary algorithm that generates an index that Popa describes as “non-flationary”, denominated in “monetary measurement unit”, or MMU, whose value is derived from many inputs.

Like another project in the making, Facebook’s Libra, Anchor’s algorithm uses inputs from leading world currencies and major bond-market yields. But unlike Libra, Anchor’s most important input is GDP movements from 190 countries, using data sourced from institutions or companies such as the World Bank and Bloomberg. “This gives it intrinsic stability,” Popa said, in contrast to other stablecoins.

It’s really telling you the value of the dollar or the yen, without any government influence

Daniel Popa, Anchor

The index data tracks back 25 years to when Eastern European countries ditched Communism and joined the liberal world. Since then, global growth in real terms (adjusted for inflation) has been 0.4% to 0.5%, on a 25-year average (or around 2.5% per annum in notional terms). Popa says Anchor’s value is tied to this absolute economic growth, instead of the vagaries of fiat currencies or commodities (whose value also vary over time against the dollar, making them unpredictable).

Anchor versus Dock

Anchor’s value will have to be managed actively. The company’s plan is a dual-currency launch. First is the Anchor coin itself, which Popa describes as a “payments token”, built on the Ethereum blockchain. The plan is to issue 700 million tokens on Liquid, with MMU currently trading at about 79 U.S. cents to one Anchor; the company is aiming to raise a total of around $600 million.

This money will go to seeding a fund that will invest in currencies and bonds to stabilize the Anchor token (ANCT), as will any returns on investment. As those investments gain in value over time, they will support an increase in value of Anchor tokens. The fund will be actively managed by Anchor to cover market events.

One of the vulnerabilities of stablecoins is that they can be broken in severe market conditions. Anchor is therefore launching a second Dock Token, which Popa describes as a “utility token”. ANCT is the main payments or currency token, while DOCT is utility token used systematically to buy or sell ANCT to maintain its price to MMUs. DOCT’s algorithm is built to provide incentives to ANCT users to contract or expand the supply of ANCT.

Dock Tokens are not tradable on exchanges, but serve as the gateway to access Anchor Tokens: upon purchasing DOCT, users automatically agree to its terms and conditions that build in this rebalancing mechanism, in return for benefits such as discounts when new ANCT is being minted.

“The Anchor token gives you a financial anchor in choppy waters,” Popa said. “When there’s a storm, we ask users to Dock their boat, and we burn the excess tokens in what we call a contraction phase. In other periods we ask users to expand the market.” He says this is just one of several tactics devised to maintain the stability of ANCT.

Measuring money

Popa declined to detail how the company defines a payments token or a utility token, saying he didn’t want to be drawn on legal issues. The company’s legal team is confident the firm is in compliance with Swiss regulations, and it will seek licenses in other jurisdictions where necessary. One of the company’s goals is to expand to other markets, with Asia a priority.

Popa, who has founded and run large-scale businesses before, wants to see the company grow quickly. It now counts 30 developers on staff, based around the world, a number he hopes will rise to 200 over the next 24 months. The priority is to grow the stablecoin and its ecosystem, with more traders using the associated Anchor app. This by itself won’t generate much in the way of revenues, but a critical mass of users would enable Anchor to launch financial services on its wallet (similar to how Libra would offer credit and other services via its Calibra app).

Popa says he hopes Libra also gets off the ground, which has many structural similarities but is fundamentally valued on fiat currencies. “The more participants, the sooner we get mass adoption of cryptocurrencies and stablecoins,” he said, adding that he expects other big corporations to enter the fray.

If the project gains currency (ba-dum-dum) then its biggest risk would be that global growth slows down. Against a backdrop of buffers against further exploitation of natural resources, climate change, and aging demographics in the world’s leading economies, is Popa worried about this?

He says no, noting that for decades growth has been constant. Even in 2008, when most countries fell into recession, aggregate business growth grew year-on-year. Moreover, he says, a momentary fall in growth would be smoothed over by the algorithm’s cumulative calculations of growth since the 1990s.

What excites him the most is how this calculation can be used. The firm’s website has a simulator measuring MMU against 19 fiat currencies plus bitcoin and Tether, going back to 2012. “It’s really telling you the value of the dollar or the yen, without any influence by a government,” Popa said.

He says the purpose of MMU is not a stablecoin per se, but to serve as a unit of monetary measurement. “Everything has a measure of unit value,” he said, noting physical phenomena such as distance, volume, pressure and so on. This endows these categories with predictability and stability.

“Everything has a unit of value, except money,” Popa said. The challenge he faces is that money is a social phenomenon, subject to human agreements rather than physical or mathematical laws of nature. Has digital finance changed that?

Copyright © 2017 Digital Finance Media Limited. All rights reserved.

Stablecoin weighs Anchor for investing in economic growth