Stellar Lumens (XLM)

Stellar started as a platform that allows users to send money and assets across the globe. It makes cross-border and multi-currency remittances simple and accessible, particularly for the unbanked.

Unlike traditional payment providers and financial institutions that charge high fees, Stellar provides these services by incentivizing a distributed network of computers to run its software and validate transactions.

Also, money transfers through the Stellar network are completed in almost real-time (over 1000 TPS vs. Bitcoin’s 5 TPS) and are cryptographically secure.

In this regard, Stellar has similarities with Ripple, which also seeks to become a payment protocol for financial institutions.

What differentiates Stellar is that it also positions itself as a kind of decentralized exchange with its ledger containing a built-in order book tracking the ownership of Stellar assets.

What is the Lumen (XLM) token?

In the Stellar network, the native token Lumen (XLM) is used to cover transaction fees and serve as a bridge between currencies.

Unlike Ripple and XRP which work mainly with banks and financial institutions, Lumens can be used by regular folks like you and me!

Stellar requires users to pay a minimal transaction fee (100 stroops or 0.00001 XLM) to maintain its network and prevent ledger spam. Users are also required to maintain a minimum account balance of 1 XLM.

Stellar Lumens are pre-mined, with 100 billion tokens initially minted and increasing at a rate of 1% for the first five years.

In October 2019, the community voted to limit the supply to 50 billion XLM to hopefully spark interest and confidence in the project.

Key Features of Lumen (XLM):

  1. Transaction Facilitation:
    • Lumens act as a bridge currency in cross-border payments. They enable the conversion of one currency into another through the Stellar network, making transactions faster and more cost-effective.
  2. Anti-Spam Mechanism:
    • To prevent spam attacks, Stellar requires a small fee for every transaction, which is paid in Lumens. This fee is minimal, typically around 0.00001 XLM, ensuring the network remains functional without being burdened by unnecessary traffic.
  3. Account Activation:
    • A minimum balance of 1 XLM is required to activate and maintain a Stellar account. This ensures that only genuine users interact with the network.
  4. Low Cost and Fast Transactions:
    • Lumens enable near-instantaneous and extremely low-cost transactions across borders, making them ideal for remittances and microtransactions.
  5. Global Accessibility:
    • As a decentralized cryptocurrency, Lumens can be used anywhere in the world, providing access to financial services for the unbanked and underbanked populations.

How are Lumens Used in the Stellar Ecosystem?

  • Bridge Asset: Lumens facilitate currency exchanges when there is no direct market between two currencies. For example, a transaction converting Philippine pesos to euros might use Lumens as an intermediary.
  • Fee Payments: Transaction fees on the Stellar network are paid in Lumens to maintain network integrity and discourage misuse.
  • Custom Token Support: Lumens support the issuance and trading of custom tokens on Stellar’s built-in decentralized exchange.

Supply and Distribution:

  • Holder Addresses: Approximately 7.159 million unique addresses hold XLM tokens.
  • Circulating Supply: Around 30.4 billion XLM (as of January 2025).
  • Maximum Supply: Capped at 50 billion XLM.
  • Inflation Mechanism: The Stellar network previously had a built-in inflation mechanism, but this was discontinued in 2019. Additionally, the Stellar Development Foundation burned over 55 billion XLM to streamline the token economy.

How does Stellar work?

The Stellar network has decentralized servers around the world that power the distributed ledger. These servers communicate among themselves to verify transactions and sync the ledger.

Here’s an overview of how it works:

Decentralized Ledger

Stellar operates on a decentralized network of independent servers (nodes) that maintain a shared, distributed ledger.

This ledger records all account balances and transactions, ensuring transparency and security.

Stellar Consensus Protocol (SCP)

Unlike traditional proof-of-work systems that Bitcoin uses, Stellar uses the Stellar Consensus Protocol (SCP), based on the Federated Byzantine Agreement (FBA).

SCP allows the network to achieve consensus without mining, enabling faster and more energy-efficient transaction validation.

When nodes try to reach an agreement, they must reach a threshold (or quorum) before it is implemented.

But instead of requiring all nodes to reach a consensus for every single transaction, each node on Stellar manages a mini network on which it checks each transaction.

These mini networks are known as quorum slices, and they actually overlap to have multiple nodes verifying each transaction.

Anchors and Asset Issuance

Anchors are trusted entities within the Stellar network that hold deposits and issue corresponding digital credits.

They act as bridges between traditional financial systems and the Stellar ecosystem, facilitating the issuance and redemption of digital assets.

Anchors issue credit to the virtual wallets of users who make deposits.

When you receive money, you can withdraw it through the anchor in that currency. Anchors can also back assets that don’t originate from the Stellar network.

Transaction Process

When a user initiates a transaction, the following steps occur:

  1. Initiation: The user submits a transaction to the network.
  2. Consensus: Nodes use SCP to validate the transaction, ensuring it adheres to network rules.
  3. Ledger Update: Once validated, the transaction is recorded on the decentralized ledger.
  4. Completion: The recipient’s account balance is updated accordingly.

This process typically completes within 3-5 seconds, allowing for near-instantaneous transactions.

Path Payments and Currency Conversion

Stellar supports path payments, enabling users to send one currency, which the network automatically converts to the recipient’s desired currency at the best available rate.

This feature simplifies cross-border transactions and reduces the need for intermediaries.

Decentralized Exchange (DEX)

Stellar includes a built-in decentralized exchange where users can trade various assets directly on the network.

This facilitates seamless currency conversions and supports the creation of custom tokens representing real-world or digital assets.

Team Background

One of the co-creators of Stellar is Jed McCaleb, who is known for founding the first Bitcoin exchange, Mt. Gox.

Prior to co-founding the Stellar Development Foundation with Joyce Kim, McCaleb served as the CTO of Ripple and has been credited for designing the XRP Ledger.

Other notable contributors to Stellar’s ecosystem include Stanford University professor David Mazieres, who is the author of the Stellar consensus protocol. He holds a Ph.D. in Electrical Engineering and Computer Science from MIT and a BS in Computer Science from Harvard.

Denelle Dixon, who is the SDF’s Executive Director and CEO, previously worked as COO at Mozilla Corporation.

Co-founder of Stellar and former Executive Director of the SDF Joyce Kim was previously CEO of Soompi in 2006 and a VC at Freestyle Capital.

Notable Investors:

The early investors of Stellar (XLM) include prominent individuals and organizations that played a pivotal role in its development during 2014. These early backers are:

  • Stripe: Provided $3 million in seed funding to the Stellar Development Foundation, receiving 2 billion XLM (2% of the initial supply) in return.
  • Keith Rabois: Member of the “PayPal Mafia.”
  • Patrick Collison: CEO of Stripe.
  • Sam Altman: Former president of YCombinator and. CEO of OpenAI
  • Naval Ravikant: Co-founder and CEO of AngelList.
  • Matt Mullenweg: Founder of WordPress.

These investors offered both financial support and credibility, helping Stellar establish its foundation and accelerate its growth.

Notable Milestones:

Stellar (XLM) has experienced several significant milestones since its inception. Here are some notable points in its project history:

  • July 2014: Jed McCaleb and Joyce Kim launched Stellar, establishing the Stellar Development Foundation with $3 million in seed funding from Stripe.
  • August 2014: Mercado Bitcoin, Brazil’s first Bitcoin exchange, adopted the Stellar network.
  • January 2015: Stellar’s platform reached approximately 3 million registered user accounts, with a market cap nearing $15 million.
  • April 2015: The Stellar Development Foundation released an upgraded protocol featuring the Stellar Consensus Protocol (SCP), developed by Stanford professor David Mazières.
  • November 2015: The new consensus algorithm went live, enhancing the network’s efficiency and security.
  • May 2017: Lightyear.io, Stellar’s for-profit entity, was launched to serve as the commercial arm of the organization.
  • October 2017: Stellar partnered with IBM and KlickEx to facilitate cross-border transactions in the South Pacific region, collaborating with local banks to improve payment systems.
  • September 2018: Lightyear Corporation acquired Chain, Inc., and the combined entity was named Interstellar, aiming to accelerate the adoption of blockchain technology.
  • December 2021: Franklin Templeton launched the first “tokenized” U.S. mutual fund using the Stellar network, marking a significant advancement in blockchain-based financial products.
  • January 2021: The Ministry of Digital Transformation of Ukraine announced a partnership with Stellar to develop the country’s digital infrastructure, leading to a 40% increase in Stellar’s value.
  • October 2021: Stellar announced a partnership with MoneyGram International to integrate its blockchain technology into MoneyGram’s payment infrastructure, enhancing cross-border payment capabilities.
  • June 2022: The Stellar-MoneyGram partnership went live, enabling customers in various countries to send and receive payments more efficiently using the Stellar blockchain.

Notable Projects:

Stellar (XLM) has been instrumental in various projects that leverage its blockchain technology for efficient and cost-effective financial solutions. Here are some notable projects utilizing Stellar:

  • IBM World Wire IBM’s cross-border payment solution utilizes Stellar’s network to enable real-time international settlements between banks. This integration aims to replace traditional banking systems like SWIFT with a more efficient blockchain-based solution.
  • MoneyGram International In October 2021, Stellar partnered with MoneyGram to integrate blockchain technology into MoneyGram’s payment infrastructure, enhancing cross-border payment capabilities. The service went live in June 2022, allowing customers to send and receive payments more efficiently using the Stellar blockchain.
  • Franklin Templeton’s Benji Platform Franklin Templeton launched the Benji investment platform on Stellar, offering tokenized U.S. mutual funds. By December 2021, it marked a significant advancement in blockchain-based financial products.
  • Circle’s USDC Integration Circle, the issuer of the USD Coin (USDC) stablecoin, integrated USDC into the Stellar network, facilitating seamless cross-border transactions and expanding the utility of Stellar’s ecosystem.
  • DSTOQ A decentralized stock exchange that leverages Stellar’s blockchain to offer tokenized securities, enabling users in emerging markets to invest in real-world assets like stocks and bonds.
  • SatoshiPay A micropayment platform that uses Stellar to facilitate instant, low-cost payments for digital content, allowing publishers to monetize content efficiently.
  • Stronghold As Stellar’s first USD anchor, Stronghold enables the issuance and trading of USD-backed tokens on the Stellar network, providing a stable medium for transactions and fostering trust within the ecosystem.

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