What is Stellar (XLM)?

Stellar is a decentralized layer 1 blockchain that enables dApp development, asset issuance, and integration with existing financial rails.

Stellar’s goal is to facilitate fast and cheap transactions between entities around the world, verified and settled by a decentralized network of nodes.

Stellar offers low transaction costs and high performance. Stellar’s native crypto token, XLM, is classified as both a payment cryptocurrency and an infrastructure token.

Payment cryptocurrencies offer a way to transact value using a distributed network rather than a centralized government. Infrastructure cryptoassets include smart contract platforms that allow developers to create their own crypto-powered decentralized applications (dApps).

Holding XLM is required to use the Stellar network, and all transaction fees on Stellar network are denominated in XLM. 

Kraken allows users to buy and trade XLM, as well as 250+ other types of cryptocurrencies.

Stellar aims to become both a leading international payments network and smart contract platform for creating decentralized applications (dApps) that facilitate financial services. 

Stellar’s main components include:

Stellar Consensus Protocol 

At the core of the Stellar network is the Stellar Consensus Protocol (SCP). Unlike other consensus mechanisms, SCP relies on the agreement of trusted nodes rather than aggregate computation power (PoW) or staking power (PoS). 

SCP adheres to three core properties:

• Fault tolerance - the system can continue operating despite node failures or malfunctions 

• Safety - ensures that all honest nodes always agree on the same set of transactions and the order they happened in

• Liveness - new blocks will be created and added to the chain, even if some nodes are misbehaving or offline, keeping the blockchain moving forward.

Nodes/Validators

Network validators form teams called Quorum sets. Members from each set compare results on new transaction data entering the blockchain (called a Quorum slice), including results from over Quorum sets (overlapping Quorum slices).

This eliminates central points of control, such as an authority that can decide whose vote is required to achieve consensus. All nodes have access to Stellar Core, which is the program that contains Stellar’s verified distributed ledger and conducts the consensus process. The ledger is typically updated every 5-7 seconds.

Of note, unlike PoS systems, XLM is not needed to create a Stellar node. Instead, users only need to set up a low demand set of software called Stellar Core to run one.

Stellar Lumens (XLM)

 The XLM token is the native currency of Stellar network and is used as a form of payment for all network fees, and held to cover minimum wallet balance requirements. Mandating a minimum balance for network participants aims to reduce the amount of spam accounts created.

Stellar is reimagining the global financial system with its focus on peer-to-peer transactions and a vision for a more inclusive financial future. The network's core mission is to provide access to financial services in regions where traditional banking remains out of reach, offering innovative solutions for settlements and remittances.

Legacy global payment rails are centralized and typically controlled by a single country or region. Stellar aims to solve these issues by creating a fast, decentralized, global payment infrastructure which records all transactions on a single immutable blockchain. Not only does it aim to enable a more seamless transfer of digitally-native assets, but it’s also meant to integrate traditional fiat currencies as well.

Stellar's unique advantage lies in its ability to efficiently handle currency conversions.  If a sender in the U.S. pays in USD to a recipient in Germany, the network converts the amount to its native token XLM and then to EUR for the recipient's convenience. This eliminates the complexity and high fees often associated with cross-border transactions, fostering a more global financial ecosystem.

Someone may wish to purchase XLM for the following reasons:

• Use Stellar’s dApps: Stellar supports various financial dApps and XLM can be used for in-app transactions, rewards, and other functionalities.

• Serve as a medium of exchange: XLM can be used as a peer-to-peer cryptocurrency within Stellar’s ecosystem and as a currency to purchase goods and services from merchants who accept the token.

• Cover transaction fees: Pay transaction fees on the Stellar network.

XLM token holders can use the token in several ways within Stellar ecosystem:

• Transaction fees: XLM is used to pay transaction fees on Stellar. Each transaction requires a small amount of XLM to be burned and is done to ensure security and prevent spam.

• Bridge currency: XLM can act as a bridge currency for cross-border payments, facilitating faster and cheaper international transactions.

• Transfer value: XLM can be sent to other users as a medium of exchange or to transfer value across the Stellar network.

Stellar was created on July 21, 2014 by Jed McCaleb and Joyce Kim. It’s genesis block date was on September 30, 2015

Key Founders

Jed McCaleb 

• Title: Co-founder of Stellar Development Foundation

• Professional Background/Qualifications: By the time he co-founded Stellar in 2014, McCaleb already had an impressive history in the blockchain space. He previously developed the Mt. Gox Bitcoin exchange in 2010 and co-founded Ripple in 2012. 

• Key Contributions: McCaleb designed the Stellar network initially using the Ripple protocol as a model, and later deviated to align it more with his vision of uniting every monetary system in the world. 

Joyce Kim 

• Kim co-founded the Stellar Development Foundation with McCaleb in 2014, and served as executive director until May 2016. Prior to co-founding Stellar, she worked in venture capital and as a corporate and M&A attorney.

Stellar is also supported by the Stellar Development Foundation (SDF), a non-profit organization that oversees the development and expansion of the Stellar network.

In September 2014, Stellar secured a seed round of $3 million led by Stripe, valuing XLM tokens at $0.0015 each. Subsequently, in March 2015, Stellar conducted a successful Initial Coin Offering (ICO), raising $39 million with XLM tokens priced at $0.0031.

There is a maximum supply of 50 billion XLM. The initial supply of about 105 billion XLM tokens were distributed as follows:

• 50% – 52,320,000,000 XLM – Direct development fund.

• 25% – 26,160,000,000 XLM – Community (businesses, institutions, nonprofits, etc.) 

• 20% – 20,930,000,000 XLM – Multiple airdrops to BTC and XRP holders.

• 3% – 3,140,000,000 XLM – Stellar Development Foundation.

• 2% – 2,090,000,000 XLM – Seed Investor (Stripe).

In 2019, the SDF decided to burn over half the XLM supply (about 55 billion XLM), which capped the total supply of XLM at roughly 50 billion XLM. This was done to improve the overall efficiency and value of the Stellar ecosystem. By reducing the XLM supply, the SDF aimed to increase the scarcity and value of each remaining token, thereby creating a more appealing network for both investors and users.

Currently, about 21.25 billion XLM (~42.5% of the total supply) is not in circulation. These tokens are not distributed on a set schedule, and there’s no date before which all tokens must be distributed.

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