What is Stellar (XLM)? [A Comprehensive Guide to Understanding Stellar]

By Mr.CryptoWiki | cryptocurrency | 15 Sep 2019

The whole idea behind cryptocurrencies (the cryptos intended to be used as currency or facilitate payments and transactions) is to improve upon and replace the existing financial system. This is the intention behind Bitcoin, Litecoin, and a slew of other well-established cryptocurrencies. 

However, there are varying ways to go about this and different cryptos are moving forward in different ways. Take Stellar (XLM) for instance. Unlike Bitcoin, Litecoin, and other currency like cryptos that offer a complete alternative to traditional financial systems, Stellar is attempting to integrate with and revolutionize our current financial system. It’s doing this by building a blockchain-based distributed ledger network that connects banks, payments systems and people to facilitate fast, cross-border transactions between any pair of currencies.

In the following article, I provide a comprehensive and subjective look at Stellar (XLM) so that you can fundamentally understand what Stellar is. I delve into the characteristics that set it apart from so many other cryptocurrency projects and shed light on how it actually works. 

So buckle up and enjoy this comprehensive guide to understanding the popular digital asset – Stellar Lumens (XLM). 



Stellar is an open-source, decentralized blockchain-based payment protocol for digital currency to fiat money transfers which allows for global transactions between any pair of currencies. The protocol was launched in 2014 by Jed McCaleb – founder of Mt. Gox and co-founder of Ripple – and former lawyer Joyce Kim

McCaleb and Kim initially created Stellar to create a network of financial institutions in developing nations and to serve the unbanked. However, it later shifted more towards Ripple’s vision, which was to connect large and established financial firms to the blockchain for fast and cheap cross-border payments. While this remains as Stellar’s main focus today, the project is also making strides in providing and innovating financial services for the people. 

Prior to the official launch, McCaleb along with Stripe CEO Patrick Collison founded the nonprofit Stellar Development Foundation and launched the project in July 2014. This foundation received $3 million in seed funding from Stripe and then distributed the initial 100 billion XLM to a variety of parties. 

Token Distribution

Stripe received 2 percent or 2 billion XLM in return for its seed investment, 5 percent was reserved for Stellar.org operational expenses, 23 percent was given to other partners and non profits who contributed to the growth and adoption of the Stellar ecosystem, 20 percent were reserved and distributed to Bitcoin and XRP holders in two separate rounds (October 2016 and August 2017), and 50 percent were given away to individuals who signed up through an invitation link at a rate of about 50-300 XLM per person. 

Therefore, the Stellar project did not raise funds and distribute their Stellar Lumens (XLM) tokens through an Initial Coin Offering (ICO) like most other cryptocurrency projects today. Instead, they attempted to distribute XLM tokens in a fair and transparent manner and they still continue to do this today. In 2018, Stellar partnered with the popular Blockchain.com crypto wallet company to distribute $125 million worth of XLM (about half 500 million tokens) to Blockchain wallet holders. More recently, the Stellar Development Foundation has partnered with messaging service, Keybase to airdrop 2 billion XLM (roughly $120 million) to Keybase users. These users can now expect monthly airdrops of 100 million XLM over the next 20 months starting September 2019. 

Token Economics

You might be wondering how the Stellar Foundation is able to distribute so many tokens after the initial 100 billion tokens were already distributed. Well, 5 percent of tokens were reserved for the Stellar Foundation and 25 percent went to partners and contributors. Therefore, some of these newly distributed tokens come from there. Additionally, the Stellar Foundation more than likely buys up sizable stacks of XLM when it’s cheap and therefore has more tokens in their possession. 

Furthermore, new XLM tokens get added to the total supply at a rate of 1% each year. The protocol then distributes these newly added tokens every week to various accounts. These receiving accounts are chosen by getting over .05 percent of votes from other accounts in the network. The number of tokens distributed to these accounts is dependent on the percentage of votes they receive. At the time of writing, the total supply of Stellar Lumens is 105,323,320,393 XLM.

The Purpose of Stellar (XLM)


The Stellar blockchain-based protocol was created to efficiently facilitate cross-border transactions between any pair of currencies. It is an alternative money transfer system to that of traditional financial firms such as banks and payment processors like PayPal. 

The way that Stellar fundamentally works is by tracking ownership. It’s like a blockchain-based accounting system shared across a distributed network of computers (nodes). The Stellar network stores two important things for every account holder: their account balance and operations on those balances (like buy or sell offers). The system allegedly enables 1000 operations per second and operates in a decentralized manner with hundreds of nodes around the world running the Stellar protocol. Anyone, including you and me, banks, and other financial institutions can transact with one another without a middleman. 

Powering the Stellar network is the protocol’s token, Lumens (XLM). Lumens play an integral role in the network’s operation because anyone who wants to hold or move money on the Stellar network must hold lumens (at least 20 XLM). Each account on the Stellar protocol must set aside a small increment of lumens for each type of asset it holds. Also, an account must reserve lumens for each operation on their balances. Additionally, lumens are also used to pay transaction fees on the network, which are very small (around 0.00001 XLM).

The reason why lumens are needed for the reasons explained above is to minimize ledger spam. The transaction fees and reserve requirements make it unprofitable to spam the network with pointless transactions. Another reason lumens are necessary is for liquidity when conducting cross-currency payments. XLM is used as the intermediate asset–also called a bridge asset–to get the best price. In other words, it enables users to trade between multiple currencies and is especially helpful for thinly-traded currencies.

Stellar (XLM) Issues & Controversies


Thus far, this article has highlighted Stellar (XLM) in a positive light. However, like other cryptocurrencies, it is not without faults and negative aspects. 

One of the biggest concerns about Stellar is whether or not it is really decentralized. The project claims to be decentralized with hundreds of nodes operating the protocol around the world, yet the Stellar network went offline for 67 minutes on May 15, 2019. This event was highly publicized in the crypto community and raised a lot of questions and concerns about Stellar’s decentralization.  While no funds were lost due to the shutdown, a lot of faith in the Stellar project was quickly diminished.

In response to this shutdown, the Stellar Development Foundation admitted that Stellar’s federated Byzantine agreement (FBA), which is a consensus model, was highly centralized. However, they proclaimed that they would be working on improvements and have since stated that it is now more decentralized.

Another big concern held by some people in the cryptocurrency space is that Stellar’s XLM valuation is a huge problem. Some people think that Stellar is overvalued and has no reason to go up in price other than for speculation that it will one day be used as a currency. However, Stellar’s lumens are not intended to be used as a currency like Bitcoin or Litecoin. As mentioned earlier, Lumens are used in the Stellar protocol for paying fees and acting as a bridge asset– in which it is only held during a transaction for a duration of 2 - 5 seconds before getting sold for the exchanged currency. Therefore, some people believe that Stellar XLM tokens should not be seen as an investment. Also, another argument is that Stellar’s total supply of 100 billion XLM tokens just isn’t necessary. However, whether these are truly viable concerns is up to debate. 

Stellar (XLM) Partnerships and Real-World Applications


One of the best ways to judge the value proposition of a cryptocurrency is whether or not it has real partnerships with with real-world applications or at least potential use cases. In Stellar’s case, the cryptocurrency is doing quite well on this front as they have secured multiple partnerships with reputable companies. 

Soon after Stellar’s launch in 2015, the project released an integration into Vumi, an open-source messaging platform of the Praekelt Foundation. Using the Stellar protocol, Vuminuses cell phone talk time as currency. Also in 2015, Stellar partnered with cloud-based banking software company Oradian, which uses Stellar’s protocol to add microfinance institutions (MFIs) in Nigeria.

One of Stellar’s most notable partnerships is with Deloitte, who integrated Stellar in 2016 to build a cross-border payments application, Deloitte Digital Bank. Other digital banking integrations include Coins.ph, a mobile payments app in the Philippines; ICICI Bank in India; Flutterwave, an African mobile payments app; and Tempo Money Transfer, a French remittances company.

Another renowned partnership in which Stellar acquired in 2017 is with IBM and KlickEx to facilitate cross-border transactions between banks in South Africa. Additionally, Stellar has partnered with SureRemit, a Nigerian-based remittances platform. Stellar continues to work closely with IBM today and have just announced in 2019, a new real-time global payments system built on the Stellar network called World Wire. World Wire has big ambitions as it aims to replace the legacy banking system with simple point-to-point transactions.

Apart from the partnerships mentioned above, Stellar has also partnered with Blockchain.com and Keybase to further distribute Stellar Lumens (XLM) to their customer base. All in all, Stellar is not short on partnerships and continues to announce new integrations, applications, and collaborations as time goes on. 


Stellar (XLM) has maintained its position as one of the leading cryptocurrencies and is currently ranked number 12 in terms of market capitalization. The project has announced multiple promising partnerships and real-world integrations and continues to do so to this day. The cryptocurrency has a strong community of supporters and is active in the cryptocurrency space with new developments, airdrops, and more. 

Stellar may not be perfect as it has suffered a variety of controversies, but the project continues to move forward and pursue its goal of becoming a borderless, limitless, and powerful open network for storing and moving money.

What do you think about Stellar (XLM)? Do you think it will achieve real-world adoption as a global payments network? Let us know what you think in the comment section below.

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