Stellar (XLM)

Stellar (XLM), whose coin is called the lumen, is the native asset of the Stellar network, an open blockchain launched in 2014 for moving money across borders and issuing digital versions of currencies and other assets. Lumens pay the network's tiny fees, meet the minimum balance each account must keep, and can act as a bridge between other assets on Stellar's built-in exchange. The non-profit Stellar Development Foundation (SDF) supports the network and holds a large share of the lumens.

Stellar was co-founded by Jed McCaleb, one of the creators of the XRP Ledger, and the lawyer Joyce Kim, and its code began as a copy of that software before Stellar moved to its own consensus protocol in 2015. It is often compared with XRP (XRP), but Stellar is run by a foundation rather than a company, and most of the value it carries today is in issued assets such as USDC rather than lumens.

Picture a worldwide chain of money-changing kiosks run by different banks and payment companies. Each kiosk takes in local cash and hands out a digital voucher for it, and any voucher can be sent to any other kiosk in a few seconds and swapped for a different voucher on the way. Stellar is the shared record that keeps track of every voucher and every swap.

Lumens are the postage. Sending anything costs a tiny amount, far less than a cent, and each account must keep a small balance of lumens, like the minimum deposit needed to keep a bank account open. Those small costs keep people from flooding the system with junk, and lumens can also stand in the middle of a swap when two currencies have no direct buyers.

Stellar launched in July 2014 with 100 billion lumens and a built-in inflation of 1 percent a year. In 2015 the Stanford computer scientist David Mazières published the Stellar Consensus Protocol, and the network was relaunched on it. IBM used Stellar for its World Wire cross-border payment service in 2019. Validators voted to end inflation in October 2019, and in November 2019 the SDF destroyed about 55 billion lumens it had set aside for giveaways and operations, cutting the total supply to about 50 billion. In 2021 MoneyGram agreed to let users move between cash and USDC on Stellar at its locations, and on 20 February 2024 validators approved Protocol 20, which added smart contracts through a platform called Soroban.

Stellar does not use mining or staking. Its consensus protocol is a federated Byzantine agreement: each validator picks the other validators it trusts, and the network agrees once overlapping groups of them concur, closing a new ledger about every five seconds. Companies called anchors issue tokens backed by money they hold, such as dollars or euros, and a built-in decentralized exchange matches offers between assets. Lumens divide into 10 million "stroops", and the base fee is 100 stroops, or 0.00001 XLM. Every account must hold a minimum balance set by the base reserve:

• $2$ counts the account itself, which needs two base reserves.
• $n$ is the number of subentries the account has, such as trustlines, offers and extra signers.
• 0.5 XLM is the current base reserve, which validators can change by vote.

A new account with no subentries needs $2 \times 0.5 = 1$ XLM. If it adds three trustlines to hold different stablecoins and places one offer on the exchange, $n = 4$ and the minimum rises to $(2 + 4) \times 0.5 = 3$ XLM. Lumens locked this way cannot be spent until the subentries are removed.

• Remittances. Payment firms use Stellar to send remittances, with cash-in and cash-out at agents of money transfer operators such as MoneyGram.
• Stablecoins. USDC and other dollar tokens circulate on Stellar for stablecoin payments and treasury transfers.
• Tokenized funds. Franklin Templeton has recorded shares of its US government money fund on Stellar since 2021, an early tokenized money market fund.
• Bridging. Lumens can sit in the middle of a trade between two thinly traded assets, improving liquidity for currency pairs with few direct buyers.

The SDF still holds a large share of all lumens, and critics say that, together with the small number of organisations running core validators, this concentrates influence over the network. Demand for lumens themselves is modest, because most activity on Stellar is in stablecoins and other issued tokens whose fees are tiny. Stellar also competes with faster-growing networks for the same payment and tokenization business. As with any cryptocurrency, the price of XLM is volatile, and users of issued assets depend on the anchor behind each token honouring redemptions.

• Stellar
• Stellar developer documentation
• Stellar Development Foundation