Stellar

Stellar (XLM) is an open-source, decentralized blockchain platform that was launched in 2014 by Jed McCaleb, a co-founder of Ripple, and Joyce Kim, a former lawyer. The Stellar Development Foundation, a non-profit organization, was established to support the network's technical and business communities. Initially, 100 billion lumens were created, with 25% allocated to non-profit organizations working towards financial inclusion. Stripe, a payment company, provided $3 million in seed funding in exchange for 2% of the initial lumens.

In 2015, Stellar released an upgraded protocol with a new consensus algorithm, which went live in November of that year. This algorithm, known as the Stellar Consensus Protocol (SCP), was created by Stanford professor David Mazières.

Over time, Stellar has expanded its partnerships and use cases. In 2015, it integrated with Vumi, a messaging platform in South Africa, and with Oradian, a cloud-based banking software company, to add microfinance institutions in Nigeria. In 2016, Deloitte announced its integration with Stellar to build a cross-border payments application. Stellar also partnered with IBM and KlickEx in 2017 to facilitate cross-border transactions in the South Pacific region.

In 2017, Lightyear.io, a for-profit entity of Stellar, was launched as the commercial arm of the company. In 2018, Lightyear Corporation acquired Chain, Inc., and the combined company was named Interstellar.

In 2021, the Stellar Development Foundation announced a partnership with the Ministry of Digital Transformation of Ukraine to develop Ukraine's digital infrastructure, which led to a significant increase in Stellar's value.

Today, Stellar is the 8th largest cryptocurrency by market capitalization, with a market cap of $11 billion. It is known for its fast and low-cost transactions, with a transaction fee of only 0.00001 XLM. The Stellar network has processed billions of transactions and has established partnerships with major companies, making it a popular cryptocurrency investment.

Stellar (XLM) is a decentralized, open-source blockchain network designed to facilitate swift and low-cost cross-border transactions between any pair of currencies. Here's how it works:

• Native Currency: Lumens (XLM): Lumens are the native digital currency of the Stellar network. They serve several key functions, including facilitating transactions, acting as a bridge currency, maintaining network security, providing liquidity, and enabling access to financial services.

• Consensus Protocol: Federated Byzantine Agreement (FBA): Stellar employs the FBA algorithm, which expedites transaction processing by using quorum slices (portions of the network) to approve and validate transactions. This process makes Stellar's network remarkably swift, reportedly processing up to 1,000 network operations per second.

• Decentralized Servers and Distributed Ledger: Stellar operates a network of decentralized servers with a distributed ledger that is updated every two to five seconds among all nodes.

• Transaction Fees: Every transaction on the Stellar network has a nominal fee, currently set at 0.00001 XLM, to deter spamming the network with frivolous or malicious transactions.

• Bridge Currency: XLM can function as an intermediary currency in transactions between different currencies on the Stellar network, making it particularly useful in cross-border transactions where there might not be a direct market between the two currencies involved.

• Minimum Balance Requirement: To open an account on the Stellar network, a minimum balance of 1 XLM is required. This requirement is intended to prevent ledger spam and ensure that all accounts on the network are genuine.

• Decentralized Exchange: The Stellar network allows for the creation and exchange of various digital assets and custom tokens that can represent fiat currencies, commodities, or any other form of value. These assets can be traded on Stellar's decentralized exchange, making XLM a key liquidity provider.

• Financial Services: XLM enables access to financial services on the Stellar network, including payments, remittances, and micropayments, among others. By using XLM, users can engage in financial transactions that are faster and cheaper than traditional banking systems, especially in underbanked regions of the world.

• Hardware Wallets: Hardware wallets are a top choice for safeguarding Stellar (XLM) holdings, as they store cryptocurrency offline in "cold storage," effectively insulating them from online vulnerabilities and hacking threats.

• Software Wallets: Stellar (XLM) is also widely supported by non-custodial software wallets, providing a secure solution for substantial investments and long-term holding.

• Partnerships: Stellar has developed partnerships with various organizations, including IBM, Stripe, Wirex, SureRemit, and Smartlands, to expand its reach and use cases.

• Integration: Stellar has been integrated with Samsung Mobile, further increasing its accessibility and potential for widespread adoption.

• Fixed Supply: Stellar does not have any form of mining or staking, as the maximum amount of XLM is already in circulation.

• Initial Supply and Inflation: Initially, 100 billion lumens were created, with a 1% annual inflation rate. However, this inflation mechanism was ended by community vote in 2019, and the overall lumen supply was reduced. Now, there are about 50 billion lumens in existence, with no more to be created.

• Centralization: Critics argue that the Stellar blockchain is centralized around the Stellar Development Foundation, which manages a substantial share of lumens tokens. This could lead to concerns about the potential for the foundation to influence the market by selling its tokens.

• Node Control: The network relies on a limited number of nodes, many of which are controlled by the SDF. This has raised concerns about the potential for a single entity to significantly impact the network's operation.

• Similarities: Stellar and Ripple share similarities in their protocols and use cases, both aiming to connect financial institutions and reduce the cost and time required for cross-border transfers.

• Differences: Stellar is an open-source, decentralized network focused on developing markets, whereas Ripple is a closed system primarily working with established banking institutions and consortiums.

Stellar (XLM) has several strengths that contribute to its value and usability:

• Global Partnerships: Stellar has developed partnerships with major companies like Samsung Mobile, IBM, Stripe, Wirex, SureRemit, and Smartlands, which enhance its reach and credibility.
• Cross-Border Payments: Stellar is designed for rapid, low-cost transactions, making it an efficient platform for cross-border payments. It can handle digital representations of various currencies, including the U.S. dollar, euro, and Bitcoin.
• Decentralized Network: Stellar's network is fully decentralized, allowing anyone to become a validator node, which adds to its security. It also has a mechanism to prevent void transaction spamming by implementing a small fee for each transaction.
• Finite Supply: Stellar has a finite supply of Lumens (XLM), which helps maintain its value. The total supply was initially 100 billion but was reduced to around 50 billion after users voted to end the programmatic supply increases in 2019.
• Use Cases: Stellar has various use cases, including aid distribution, money market funds, and financial apps, which demonstrate its real-world usability.
• Open-Source: As an open-source platform, Stellar's infrastructure is available for anyone to use and build upon, making it a versatile tool for developers and companies.
• Low Fees: Stellar's transactions are extremely low-cost, making it an attractive option for users who need to transfer funds efficiently.

These strengths contribute to Stellar's value and its potential as a reliable platform for cross-border payments and decentralized finance.

Stellar (XLM) faces several risks that investors should be aware of:

1. Centralization: The Stellar Development Foundation holds about 60% of the XLM supply, giving it significant control over the cryptocurrency and its value. This centralization can be a concern for those who value decentralized systems.

2. Limited Validators: Stellar's network has fewer than 60 validators, making it more vulnerable to node collaboration and attacks on processing capabilities. This limited number of validators can compromise the network's security and resilience.

3. Lack of Incentives: Stellar does not offer crypto staking, which means users have little incentive to hold XLM tokens outside of the minimum required to use the network. This can impact the token's value and adoption.

4. Competition: Stellar faces competition from other payment protocols, such as Ripple, which has a larger market cap. This competition can make it challenging for Stellar to gain traction and attract users.

5. Volatility: Like other cryptocurrencies, Stellar is highly volatile, and its value can fluctuate rapidly. This volatility can result in significant losses for investors who are not prepared for market swings.

6. Algorithmic Risks: Stellar's Federated Byzantine Agreement algorithm does not provide a financial incentive for running nodes and becoming validators, which can impact the network's stability and security.

These risks highlight the importance of thorough research and careful consideration before investing in Stellar or any other cryptocurrency.

• Jed McCaleb: Co-Founder and Chief Architect at Stellar Development Foundation.
• Lin-Hua Wu: SVP and Chief Communications Officer at General Motors.
• Ronaldo Lemos: Member of the Stellar Development Foundation team.