Intro

The Stellar network can be used to hold, transfer, and trade any type of asset: dollars, euros, bitcoin, stocks, gold, ICO tokens, and more.

Using Stellar, there’s no need to create a custom, error-prone smart contract to issue an asset.

Instead, the concept of an asset is built into the open source software that powers the Stellar network.

This makes the process of issuing assets on the Stellar network more secure and much easier.

Asset Types

There are three types of assets in the network:

Lumens

Lumens are the native currency of the network and act as a spam prevention mechanism via transaction fees and as a bridge currency between different assets on the decentralized exchange.

Non-Anchored Assets

These are assets that originate on the network and don’t represent any assets outside of the network. They are often ICO tokens similar to ERC-20 tokens.

Other terms for this asset include non-collateralized or non-redeemable.

Anchored Assets

If an asset did not originate on the network, it is anchored on the network by an anchoring entity, or anchor.

These assets are also called collateralized, redeemable, or tethered assets.

Anchors

Anchors act as a bridge between outside currencies and the Stellar network.

An anchor can be thought of as a bank. Banks:

1. Take your cash deposit
2. Issue you an IOU in the form of a balance on your account with that bank. You can see your balance in their database through a website or app.
3. And honor withdraws from your account by giving you cash

Interacting with anchors is similar. Anchors:

1. Take your deposit
2. Issue the corresponding credit to your account address on the Stellar ledger, which you can see in a wallet app or ledger explorer website
3. And honor withdraws by receiving the credit they issued you and giving you your asset

Difference

The primary difference between assets held in banks vs anchors is where you can access and move your assets.

A centralized database vs the Stellar ledger

Because all the anchors - the payment processors, banks, exchanges, and other financial institutions - are operating on the same network, they and their users can transact with each other without the friction of fees, middlemen, and wait times.

Trust

To hold an asset from an anchor, you must issue a trustline to that anchor’s account

Just as you only do business with banks and exchanges you trust, you should only work with anchors that you trust to hold your assets and honor your withdrawals.

When you want to hold assets with a bank in the real world, you must open an account with them.

Similarly, in the Stellar network, when you want to hold assets with an anchor, you must issue a trust line from your Stellar account to that anchor’s Stellar account. Trustlines also protect you from having random, unsolicited assets sent to you.

Use cases

Anchored assets can be any asset. There’s anchored

1. Fiat -Fiat assets, or government issued currencies like the US Dollar
2. Crypto - Cryptocurrency assets that originate in other networks like Bitcoin
3. Stocks - Stocks that originate from a company as a unit of ownership in that company
4. Bonds - Bonds that also originate from entities and represent debt
5. Commodities - Commodities that originate in the physical world like gold.
6. Real estate - Real estate, or ownership stake in physical world property