Stellar (XLM) Coin Analysis & Ratings
Stellar.org operates as a non-stock, nonprofit organization designed to connect people to global, low-cost financial services to fight poverty and maximize individual potential. The goal is to help fight the current financial conditions of the market (Long transaction times, bureaucracy, transaction fees, multiple dependencies on third parties, to name a few) and allow individuals to secure their future without having to worry about economic constraints. Founded in 2014 by Jed McCaleb, co-founder of Ripple, after running into philosophical differences with the rest of the Ripple board, the main difference between the two is their respective target audience; Banks and financial institutions for Ripple; Clients (People) for Stellar. The premise is that STellar Lumens works as a liaison between people, banks, and the payment system. It aims to bring all your financial needs and requirements into a single platform, letting you perform transactions at any time and at any speed, near free of charge.
Comprehensiveness: Stellar Lumens documentation is superb. It is thorough, robust and touches just about anything that needs to be discussed and doesn’t venture into irrelevancy.
We’ll start with the whitepaper, which, at 32 pages, is mostly technical. No fancy design; just black letters on a white background, followed by countless logical explanations for the platform in its entirety, and dozens of parameters and equations. In short, the whitepaper touches on the Federated Byzantine Agreement (FBA), a consensus model that Stellar constructed upon to create their Stellar Consesus Protocol, or SCP.
Nodes on a blockchain validate blocks of data by reaching consensus on the solution to a given problem. A Byzantine agreement is reached when a certain minimum number of nodes (known as a quorum) agrees that the solution presented is correct, thereby validating a block and allowing its inclusion on the blockchain. It was first seen utilized in Ripple’s consensus protocol, and Stellar’s team took the protocol a step further, to create the first provably safe FBA protocol.
The entirety of the whitepaper itself deals with the protocol from all sides and views and really drives the point of the reasons to use this mechanism home.
Other than the whitepaper, the Stellar team presents a plethora of useful documents on their website. This includes different SDKs (C#, Ruby, Python, Java, Go, JS), REST API, user-friendly guides on how to send and receive payments, how to become an anchor, what are Stellar Smart Contracts (SSCs) and more.
Readability: The whitepaper and mostly all of the technical side of the guides are fairly readable, yet are nothing out of the ordinary. It was never designed to be pretty on the eyes and is not bathed in colors, infographics or even font changes. However, to combat these issues and to make their data more accessible and comprehensible to the greater audience, Stellar has a series of slideshows that explain everything a user needs to know — how to receive and send payments, and generally how to operate within the platform. Almost everything one needs to know about Stellar, how to use it, how to start building on it and anything in between is inside STF’s website and assets.
Transparency: From the get-go, the Stellar team has been very transparent. Since the funds to run the platform come from either 1) a reserve that is already in place and/or 2) donations from users, the team behind the platform can work on updates, new revisions and new features without fearing the lack of ways to monetize the platform. We see numerous projects, specifically in the cryptosphere, that are only as transparent as it is profitable for them to be, meaning a lot of scrutiny and criticism are swept under the rug. Stellar Lumens have been under scrutiny from the get-go, with a magnifying glass with Jed McCaleb’s name of it leading the charge, and rightfully so. This, however, is part of what made Stellar Lumens as transparent as they are — everything is out in the open, in their documentation, blog posts and on social media. They do not shy away from criticism and, as of now, seem fairly transparent in critical issues.
Presentation of Business Plan and Token Model: From the get-go, the Stellar team has been very transparent. Since the funds to run the platform come from either 1) a reserve that is already in place and/or 2) donations from users, the team behind the platform can work on updates, new revisions and new features without fearing the lack of ways to monetize the platform. We see numerous projects, specifically in the cryptosphere, that are only as transparent as it is profitable for them to be, meaning a lot of scrutiny and criticism are swept under the rug. Stellar Lumens have been under scrutiny from the get-go, with a magnifying glass with Jed McCaleb’s name of it leading the charge, and rightfully so. This, however, is part of what made Stellar Lumens as transparent as they are — everything is out in the open, in their documentation, blog posts and on social media. They do not shy away from criticism and, as of now, seem fairly transparent in critical issues.
Presentation of Platform Technology and Use of Blockchain: The presentation of the platform technology, the use of blockchain and Stellar’s improved BFA consensus mechanism is nothing short of amazing. Elaborated slightly under the ‘Whitepaper’ section, the 32-pager consists of immense amounts of data paired with an explanation for the developer’s line of thought. Every suggested idea or implementation is followed by examples, logical reasoning, and proper references, and later in the whitepaper, the team really dives down into the exact calculations for underlying mechanisms inside the platform. Not only that, but there are guides all over the main Stellar Lumens website — for newcomers who know nothing about blockchain and cryptocurrency as well as for software developers, tech-savvy people and anywhere in between. Moreover, Stellar published links to their REST (Representational State Transfer (REST)) API and numerous SDKs, including JS, Java, Go, Python and Ruby.
Legal Review and Risk Assessment: Not very thorough. In fact, we could not find anything that sheds any light on legal risks or any legal overview whatsoever. Not in the whitepaper, not on Stellar’s website with other documents. It is assumed that because Stellar aims to work with payments systems and banks, local and international laws and regulations in relation to financial services must be obeyed?, eventually. It is somewhat alarming that there is a great absence of any legal review whatsoever.
Differentiation: We will touch on the relationship between Stellar and its forefather — Ripple. First, there are fundamental philosophical differences. Stellar is a non-profit open-source technology that primarily serves to promote worldwide financial access and inclusion. Stellar partners with financial institutions and global money transfer operators as well as other projects and businesses, with an emphasis on helping to serve the underserved and unbanked. The network already has live payments, starting from Europe to the Philippines, and the Stellar team already announced working towards integrating African countries as well. By comparison, Ripple is a for-profit entity that is creating a payments network with large financial institutions. It currently has over 75 big banks on its network, including big names like Bank of America, RBC, Standard Chartered, and UBS, with a remarkable number of partnerships and collaborations with key groups and businesses already announced and confirmed throughout the last two years. Furthermore, there are fundamental technological differences. Stellar was a fork of Ripple back in 2014, but now there is almost no shared code. That software, called Stellard, is still running in production. However, about half a year after launching, Stellar subsequently released a completely unrelated payment system called Stellar-Core, that uses the SCP and an entirely new code base. The Stellar Consensus Mechanism was developed by David Mazieres, Professor of Computer Science. SCP allows a lot of flexibility in terms of how nodes configure their quorums and is explicitly designed to accommodate Byzantine failures and different nodes trusting different subsets of the system. Meanwhile, Ripple uses probabilistic voting, a very different mechanism that relies on majority validation. Another key difference is that Stellar is inflationary by nature, with 1% new Lumens being printed each year (And also recycling fees to later distribute back to the community), while Ripple is inherently not, by destroying fees and reducing the amount of XRPs in circulation. Another thing is, Ripple is arguably much more centralized than Stellar. It runs a permissioned ledger where Ripple itself determines who may act as a transaction validator on their network. Stellar, on the other hand, has an open ledger that anyone can view, access, and join, and anyone could be a transaction validator, in theory, and mostly in practice too. Stellar also hosts Build Challenges (6 already concluded!) to reward builders who create useful technologies on the Stellar network as well as also releasing a Partnerships Program that offers partners up to $2 million in lumen grants.
Readiness: Stellar’s platform is running smoothly at the moment. The volume isn’t large, but adopting is still scarce. Remittances are simple, letting you send money across various borders, with Stellar aggressively expanding fields of operation into Southeast Asia and countries in Africa. Real-time transactions settlements occur within seconds, costing practically zero fees. Multicurrency transactions work fast and well. (The concept is “”clearing””, broadly meaning in our context which is cash value transfers cross-border, clearing is the activity of identifying participants, agreeing to the transaction, and mutually agreeing to settlement terms. During this process, the entities exchange IOUs with each other. This is what you’re seeing in the stellar exchange today if the assets are denominated in fiat — one entity is sending a USD obligation to the beneficiary. Acceptance of that is acceptance of the clearing arrangement. ) Overall, Stellar’s network is far from optimal, the way they see it, but is very much a working product, and it’s working smoothly.
Concreteness of Development Plans: The roadmap on itself isn’t very detailed — it specifies main goals and secondary objectives, which are briefly explained. The two key goals — the Stellar Decentralized Exchange and implementing Lightning Network on Stellar, initially did not have a well-defined timeframe within 2018, and on March 19th, 2018, the SDF released another smaller roadmap just for the Lightning Network implementation, with specific dates and a solid time frame within the second half of the year, and there are several talks about the exchange being prepped up to be released around Q3.
The objectives are somewhat well defined within the boundaries of reason — there isn’t an abundance of information nor is it completely devoid of useful information. Stellar briefly touches on why they are looking to upgrade what they do, in what ways, the exchange’s planned features and small partnership announcements, along with links to the project’s Github repositories. A better defined roadmap for the Stellar Decentralized Exchange is welcome and needed.
Current Position within Roadmap: The 2018 roadmap in its entirety can be found here (https://www.stellar.org/blog/2018-Stellar-Roadmap/) and basically states two key goals the foundation aims to achieve by the end of 2018: the Stellar Decentralized Exchange and implementing Lightning Network on Stellar. Currently, the two are still under development but are expected to come out sometime this year, with constant commits and updates on these issues. The secondary objectives Stellar set out to achieve by the end of the year are to improve the ecosystem support, increase network security and make validator nodes easier to run and more efficient and self-sustaining. They are also planning to revisit some of the P2P code to improve how nodes interact and exchange data between themselves. All in all, Stellar didn’t release a bombastic, out-of-touch roadmap — instead, they announced a small post back in January, with sufficient details and realistic goals. They appear to be well on track to achieving those goals. On March 19th, 2018 the Stellar foundation released another roadmap for the Lightning Network implementations. (https://www.stellar.org/blog/lightning-on-stellar-roadmap/) * Apr 1 BUMP_SEQUENCE pushed to a testnet * Aug 1 State channels beta implementation * Oct 1 State channels on Stellar livenet + Lightning Network beta * Dec 1 Lightning Network on Stellar livenet
Feasiblity: It is hard to gauge exactly how feasible are the SDF’s plans are. Their blockchain is in place — the architecture is sound and even inspiring. There are significantly more users, significantly more interest and most importantly, more users are using the platform than just several months back, and Stellar consistently hosts competitions they like to call ‘build challenges’ which are an ongoing program to reward innovation and development in the Stellar ecosystem that happens 4 times a year, with more and more interest garnered after each event. There are promising partnerships, including IBM and Tempo to name a few. There is stability — Stellar has been around since 2014 and has shown to have the funds to support their project for this long.
Looking at the larger picture, Stellar has true potential to achieve all their goals — a rare sight in the cryptosphere, especially for an organization that is non-profit — but will face difficult challenges. The main one is adoption, something 99% of the cryptocurrencies struggle with, something that is more defining to a crypto-based project’s success than everything else. If Stellar will manage to promote adoption — more network usage, more projects utilizing’s Stellar’s platform, more traders using their decentralized exchange, more partnerships — it will eventually reach a threshold that will open the flood gates in all their might. The potential is there, yet there are too many variables in play, and only time will tell.
Blockchain Innovation: Stellar’s biggest blockchain related innovation and overall contribution is the Stellar Consensus Protocol (SCP), a specific modulation of FBA. (Federated Byzantine agreement worldwide consensus model) The most famous and popular decentralized consensus mechanism is the proof-of-work (In PoW, miners solve hard, practically useless problems to create blocks and reach consensus under the ‘the longest chain wins’ notion) mechanism advanced by Bitcoin (And later Litecoin, Ethereum until the move to PoS and most others), with other popular decentralized concensus mechanisms used in today’s cryptosphere including Proof-of-stake (A protocol which generally states that a person can mine or validate block transactions according to how many coins he or she holds — the more coins you own, the higher your mining power is), Delegated proof-of-stake, proof-of-authority and more. Another approach to consensus is Byzantine Agreement (a model for consensus using nodes, quorum slices and quorums. Quorum slices are sets of nodes used for reaching an agreement., irreversibly) the best-known variant of which is PBFT, or the Practical Byzantine Fault Tolerance. According to the team, this approach has two appealing properties. First, consensus can be fast and efficient. Second, trust is entirely decoupled from resource ownership, which makes it possible for a small non-profit to help keep more powerful organizations. To complicate matters, however, all parties must agree on the exact list of participants. Moreover, attackers must be prevented from joining multiple times and exceeding the system’s failure tolerance (What’s known as a Sybil attack). Stellar introduced an evolution of the Federated Byzantine Agreement (FBA). Put very simply, Previous FBA protocols had a determined membership list. SCP, however, uses open membership, meaning anyone can join in. We will not get into the technicalities — Stellar’s whitepaper and other resources do that beautifully and thoroughly — but the key take from this is that Stellar took a very successful consensus protocol and improved upon it to reduce risk and improve security. It is not a wild guess to assume future projects will try to utilize’s Stellar’s FBA protocol or improve upon it entirely.
Target User Base: Stellar Lumens’ target user base is truly immense. The majority of the population uses banks or any sort of financial instruments, either private or governmental, to carry out a multitude of different operations. Stellar’s global features, low-fees, high transactions speeds and ease of use, relatively speaking, are especially appealing to people in poor parts of the world, the ‘unbanked’ — people who do not necessarily or so easily have access to basic financial services, hindering their contribution to the economy and thus society, as well as hindering their own potential. Not only that, Stellar is also very appealing to traders — there are plans in place to improve the platform and offer more features including money remittance services and asset pairs trading.
Market Penetration Potential: Stellar’s market penetration potential is fairly high. Currently, Stellar has live payments set up to the Philippines (from Europe). There are efforts in motion to set up routes into a few African countries and many more plans in the works. There are dozens of partnerships, some with more known companies and some with obscure ones, and besides improving the already existing financial ecosystem Stellar is based on, one of 2018’s major goals is to successfully create and launch the Stellar Decentralized Exchange (SDEX), as well as implementing the infamous Lightning Network on top of their platform. Together with Stellar’s altruistic-on-paper principals and philosophies, and the team’s ambition to reach out to people in regions of the world without access to proper financial services, makes Stellar’s potential to penetrate the global markets and everyday use fairly high.
Direct Competition: Stellar Lumens main competition stems from its ancestor — Ripple. Ripple provides an enterprise blockchain solution for global payments, by connecting banks, payment providers, digital asset exchanges, and corporates via the RippleNet network. Sounds very similar to Stellar Lumens, however, there’s one key difference, among others, and that difference is that Ripple is built and designed for enterprise use, and Stellar Lumens, who does offer enterprise use, has dedicated itself, at least in nature, to connect individuals through their platform, rather than provide increased functionality for banks and other financial service providers. Another difference between Lumens and Ripple is that Lumens is a non-profit and open-source technology that principally serves to promote fiscal availability and annexation, and the Stellar Development Foundation (SDF) has associated with the global operators of money transfer and many other financial institutions. Moreover, on paper, Stellar has far more use cases as its platform is more agile and versatile. It is a common misconception that Ripple has signed numerous partnerships while Stellar did not, and Stellar’s full list of announced partners can be found here. (https://www.stellar.org/about/directory) Notable names include IBM, Deloitte, Stripe and more. Although Ripple and Stellar Lumens seem very similar, they are vastly different and should be regarded as such.
Solution Advantage: Remains unclear. It is true that Stellar packs it all — an altruistic motive, an elaborate system, active developers, constant updates and more. However, one should ask how exactly Stellar plans to bridge the gap between the current XLM holders and real people in places that do not provide proper financial services, or perhaps under conditions in which proper financial services are prevented. How do those people get and use Stellar’s platform? Since most of the Lumens out there were distributed away (See: Token Economy section), and most of Stellar’s volume comes from active trading — how does the project step forward and bridge this immense gap? There is a dire need to create another layer of ‘value’ to using the platform, running a validator node and in general, holding Lumens. The lack of legal review in the official documents doesn’t really help with coming up with a proper solution — it is clear that is Stellar expects to revolutionize the monetary system on a global scale, it has to face rigorous compliance and regulations, and so far Stellar did not address this issue properly. Except for expanding services geographically as well as expanded support, these questions remain unanswered and will dictate how successful Stellar will eventually be.
Blockchain Disruption: There are quite a few benefits to be achieved by using a distributed ledger technology like the one proposed by Stellar. A reminder: The mission of the Stellar Development Foundation (SDF) is to promote global financial access. SDF’s vision is an open and affordable financial system where people of all income levels can access simple-to-use, secure, and low-cost financial services. Using a blockchain fits right in. Transactions can be done in minutes or seconds, while currently, settlements can take up a week. Instead of relying on third parties, middle-men, and technical difficulties, transactions in Stellar occur almost instantaneously and are P2P. This is a major advantage for global transfers as well as local transfers. Imagine a person working abroad and sends money back to his family every month. With Stellar, he could transfer those funds to his family in a matter of seconds. Not only that, but he will incur practically zero fees. Using a blockchain also reduces counterparty risks, while increasing transparency, and therefore ironically — increasing trust in the system, which is designed to be devoid of trust altogether. A final point is that a key feature of using blockchains, in general, is that any data recorded is immutable. Any data that is recorded on a blockchain can be tracked in real-time, leaving a very detailed audit trail. As such, it eliminates error handling and reconciliation.
Long-Term Vision: Mentioned earlier in different aspects of this review, Stellar’s core vision is very altruistic in nature, almost too altruistic in today’s capitalistic day and age. The grand notion — ‘help the unbanked’ — is commendable, but needs to hold true ground in order for it to bridge the gap between exceedingly optimistic catchphrases and a truly better and more even future. There are plans in place; the roadmap for 2018 isn’t very packed in terms of a multitude of new aspects and features, but certain key goals were set and now the team is actively pursuing them. Stellar’s github is updated every day, multiple times, and the team is active on social media — interacting with the community to improve the network. (Like setting out to implement Lightning Network) The team’s long-term vision is there — only time will tell whether Stellar’s hopes and dreams will come to fruition, or whether they are truly genuinely altruistic as they seem.
Company and Team
Company Stage and Foundation: SDF — also known as Stellar.org — was incorporated in 2014 as a non-stock non-profit corporation in the U.S. State of Delaware.SDF employs over a dozen full-time employees, part-time employees, and contractors, to develop and execute programs that promote global financial access, literacy, and inclusion. All members of Stellar.org were established at the time of incorporation. Members serve for life and are responsible for electing the Board of Directors. The SDF Members are Patrick Collison, David Mazieres, and Jed McCaleb, famously known as the man who was also behind Ripple and eDonkey. Each Member serves for life or until he or she becomes incapacitated or appoints a successor Member and resigns. Members of Stellar.org are distinct from Directors (members of the Board of Directors). A Member can also be a Director and vice versa, but the Board and Members are entirely separate bodies with regard to SDF governance. The SDF has three boards: Board of Directors: Responsible for core governance decisions, determining the direction of the Stellar Network, and lumen distribution. The Board of Directors is advised by the other two boards. Architecture Board (AB): Responsible for determining and overseeing sponsored technical initiatives. Expansion Board (EB): Responsible for overseeing network expansion initiatives, engaging with regulators, and training. Stellar funds their operations as so: * 5% of the initially created lumens on Stellar were put in a reserve to fund the cost of operations. * Charitable contributions from companies or individuals * Foundation membership. Some of the benefits for this membership include, but not limited to, networking opportunities with network members and service providers (such as consulting firms, fintech companies, and software providers), discounted technical development hours with Stellar network specialists, entry to SDF invite-only events focused on technical, compliance, and other topics. * In 2014, SDF received a loan of $3,000,000 from Stripe which was subsequently repaid with 2B lumens
Team Assembly and Commitment: Stellar employs over a dozen of full-time employees, all with relevant roles and expertise in their respective roles. Nicolas Barry (CTO), who has a Masters degree in Applied Mathematics and Computer Science, previously helped build large-scale systems at Microsoft and Salesforce. He worked for Microsoft for nearly a decade, holding key roles such as Senior Lead Software Engineer, Senior Lead Development Engineer, to eventually become the Principal Software Engineering Manager. David Mazières, described by Stellar as ‘Chief Scientist’, is a professor of Computer Science at Stanford University, where he leads the Secure Computer Systems Group. Mazières received a BS in Computer Science from Harvard and Ph.D. in Electrical Engineering and Computer Science from MIT. His research interests include operating systems and distributed systems, with a focus on security. Rafał Malinowski and Scott Fleckenstein are the two developers under McCaleb. (Robert Durst, another developer, was recently hired as well) The former is a software developer while the latter worked as Lead Developer at Couchsurfing, Lead Engineer and Chief Architect at OpenFeint (acquired by GREE) and was Lead Engineer and on the founding team for Get Satisfaction. Lisa Nestor, Director of Partnerships, holds an MBA from UCLA Anderson and was a business development volunteer with the Peace Corps (Mauritania ’07-’09), led operations and partnerships for a portfolio of research studies at the Centre for Micorfinance (India) and most recently led product marketing and growth at Payoff. Overall the team formation looks solid, with relevant expertise in key roles, however, we feel this is not enough and evidently, Stellar seems to be aggressively hiring business developers and engineers, looking at their jobs listing.
Background of Lead/Core Team Members: Prior to co-founding Stellar in 2014, Jed McCaleb founded and served as the CTO of the company Ripple. McCaleb is also known for creating the bitcoin exchange Mt. Gox, a bitcoin exchange based in Japan that operated between 2010 and 2014. The domain name was repurposed from a previous project, Magic: The Gathering Online Exchange, which was a platform for trading the world-wide famous Magic: The Gathering cards. Eventually, Mt. Gox announced that approximately 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time and $6.4 billion(!) today. To this day, the reasons for the security breaches remain unclear, with many hypotheses running around, and understandably, much criticism towards those who ran the operation. McCaleb also founded eDonkey, a decentralized, peer-to-peer file sharing network. He split ways with Ripple after deep philosophical and practical differences to create Stellar. There is still a large veil of uncertainty and criticism towards the internal differences that led to this seperation, with many reports online siding with either McCale or Ripple Lab. McCaleb is active on social media and Github. Other notable names under Stellar’s umbrella, mostly as advisors, include Patrick Collison, co-founder and CEO of Stripe, who invested in Stellar as early as 2014 and also serves on Y Combinator’s board of overseers and studied math at MIT, and Greg Stein, Director at the Apache Software Foundation and a known developer.
Relevance of Team’s Previous Experience and Skill Set: Jed McCaleb, as we mentioned under ‘Background of Lead/Core Team Members’, is in many eyes the perfect man to lead Stellar. There are many speculations as to why exactly McCaleb left Ripple to form Stellar, and we won’t indulge speculations here or there. However, is it clear as daylight that the general reason McCaleb left Ripple was ideological differences. Jeb McCaleb has a set of ideologies that are fundamentally different than the rest of the Ripple team, that can be noticed reading Stellar’s mandate and also token economics in terms of distribution and inflationary/deflationary practices. It is important to note, however, that multiple sources have mentioned and elaborated on internal feuds between men in key roles in Ripple Labs, one of which is McCaleb. Regardless of whose company’s approach and practices are better, Jed McCaleb packs immense amounts of experience, expertise, and connections that helped boost Stellar to where it is today. There is criticism claiming McCaleb burned a lot of bridges in his altercations with the Ripple team over the years, and that he let down his investors and team members. Stellar does not have any other big names leading the noble and very difficult charge to change the entire monetary system altogether other than McCaleb, with other notable names like Patrick Collison (co-founder and CEO of Stripe) and Matt Mullenweg (founder of wordpress.com) appearing in the advisory board and not the team’s core members.
Team Skill Set Balance (biz / tech / blockchain): Overall, despite not being a large team, the overall expertise of the Stellar team is very specific and precise. Lead developers like McCaleb, Mazières, Malinowski, Fleckenstein, and Nowotarski are known in their fields, pack academic expertise and are experts in their field. Lisa Nestor has worked with many established, big projects and has over a decade of expertise in building strategies for business. The advisory board is stellar, no pun intended, with Patrick Collison, Greg Stein, Matt Mullenweg and Naval Ravikant being the bigger and better known.
Strategic Partnerships: The SDF’s full list of anchors and partnerships can be found here. (https://www.stellar.org/about/directory) Notable names on the list include Stripe (a suite of APIs that powers commerce for businesses and one of Stellar’s early adopters), IBM (an American multinational technology company with operations in over 170 countries), Deloitte (a leading global finance and technology consulting firm. Its clients include 80 percent of the Fortune 500 and more than 6,000 private and middle market companies), Tempo (A high-tech European licensed remittance provider serving 43 countries), Stronghold (an asset management platform), and coins.ph. (A leading mobile financial service provider in Southeast Asia) and there are dozens more.
Value Proposition of Token: remains unclear. It is true that Stellar packs it all — an altruistic motive, an elaborate system, active developers, constant updates and more. However, one should ask how exactly Stellar plans to bridge the gap between the current XLM holders and real people in places that do not provide proper financial services, or perhaps under conditions in which proper financial services are prevented. How do those people get and use Stellar’s platform? Since most of the Lumens out there were distributed away (See: Token Economy section), and most of Stellar’s volume comes from active trading — how does the project step forward and bridge this immense gap? Except for expanding services geographically as well as expanded support, these questions remain unanswered and will dictate how successful Stellar will eventually be, if at all.
Token Economy: Lumen supply is determined by fixed, protocol-level rules. The number of lumens created at genesis was 100 billion. Every year, there is a 1% inflation rate and new lumens cannot be generated arbitrarily by anyone. The network also collects a base fee for each operation in a transaction. The funds from base fees are added to the inflation pool. As a balancing measure for the ecosystem, anyone who holds lumens can vote on where the funds in this pool go. Each week, the protocol distributes these lumens to any account that gets over .05% of the votes from other accounts on the network. As part of its custodial mandate, SDF was entrusted to oversee that the vast majority, of the Lumens, 95 billion, were distributed to the world, circa 2014, with oversight and direction provided by SDF’s Expansion Board. The initial lumens held by SDF were required to be distributed to the world in the following manner: * 50% for distribution via the Direct Sign-up Program * 25% for distribution via the Partnership Program * 20% for distribution via the Bitcoin Program * 5% held by SDF to support operational costs There are currently around 18.5B lumens in circulation, out of almost 104B lumens in total. The Stellar network’s built-in currency, the lumen, serves two purposes: The ability to facilitate multi-currency transactions and to play a small, yet important anti-spam role. Lumens are needed for transaction fees and minimum balances on accounts on the Stellar network in order to prevent people from overwhelming the network and to aid in prioritization. Each transaction has a minor fee — 0.00001 lumens — associated with it. This fee prevents users with malicious intentions from flooding the network (otherwise known as a DoS attack). Lumens serve as a security measure that mitigates DoS attacks that attempt to generate large numbers of transactions or consume large amounts of space in the ledger. Similarly, the Stellar network requires all accounts to hold a minimum balance of 0.5 lumens. This requirement incentivizes users to declutter the ledger by eliminating abandoned accounts, thereby that ensuring that all accounts are likely to have economic utility on the network. Lumens sometimes facilitate trades between pairs of currencies between which there is not a large direct market, acting as a bridge. This function is possible when there is a liquid market between the lumen and each currency involved. This feature will expand on itself when the imminent release of the Stellar Decentralized Exchange, introducing more types of asset pairs trading. However, investors should ask themselves whether besides price appreciated, there is any value to holding lumens token other than to perform operations in the network.
System Decentralization (besides token): Stellar seems to be pretty decentralized all things considered. The custom Federated Byzantine Agreement called the Stellar Consensus Protocol (SCP) removes the notion of ‘trust’ and thus increasing freedom of control and decentralization. The Lumens micro-fee for each transaction act as a barrier of defense to protect the network from malicious users through spam-check, yet those fees are given out back to the users through the inflation pool. Also, to use the Stellar platform, one must own Lumens, creating another layer of defense against exploits while also increasing Lumens inherent value. There is some criticism towards Stellar’s mechanism, one being the lack of apparent incentive to run a validator node. Some may view this as a bad design that hinders the growth of the network, some even view it as hazardous. The benefit of running a validator node is that running a node allows for customization of the business’ logic or APIs, full control of which data to retain and a trusted entry point to the system which is probably the largest factor in play when deciding whether to run a node or not.
Fundraising Goals (Min/Max Raise Amounts): There was no classic fundraising for Stellar. At the genesis block, 100B were created and then distributed (Check under ‘Use of Proceeds / fund allocation’) in several ways. The team kept 5% of that — 5 Billion Lumens — to help fuel the costs of preparing to launch, developing, launching and sustaining their network. The price per Lumen stayed less than one cent of a US dollar for years, meaning the foundation had somewhere between 20 to 30 million US worth of Lumens, for a period of around 3 years or so (Until a great price increase that started an uptrend that put Stellar in the top 10) to support their foundation, which is non-profit, including cost of operations, legal assessments, wages and hiring costs and more. This is a significant sum, but perfectly reasonable for what Stellar set out to ultimately achieve. They have sustained themselves wonderfully throughout the years since inception.
Use of Proceeds (Fund Allocation): No funds were raised when creating Stellar — the 100B lumens that were created in genesis were merely derived from code and meant to be distributed to the community — which is exactly what happened, as follows: * 50% were given away to individuals: A small (50–300 XLM) amount of lumens was given to each unique individual who signed up through an invitation link. The goal of the Direct Sign-up Program was to make lumens easily accessible to millions of individuals and communities across the globe. By implementing a simple mechanism for distribution featuring a low barrier to entry, Stellar hoped for lumens to make their way into countless individuals around the globe. Stellar’s aim with the Direct Sign-up Program was to help themselves expand the reach of the network and, subsequently, help achieve their goal of building a more inclusive digital economy by giving away free lumens as an invitation for communities to learn more about Stellar’s low cost infrastructure, learn more about digital financial assets, and design and build the financial services they need. * 25% were given away to partners: Lumens were given to businesses, governments, institutions, or nonprofit organizations that contribute to the growth and adoption of the Stellar ecosystem. The purpose of the Partnership Program was to encourage adoption and growth of Stellar through the institutional distribution of lumens. As institutional adoption is a primary driver for scaling usage, the Partnership Program was structured to incentivize key institutional adopters and align their goals with those of the SDF’s. More specifically, the goal of the program, according to Stellar, was to reward institutions that contribute to the Stellar ecosystem in two core capacities: By being an early adopter and contributor to the Stellar ecosystem or; By extending the network’s reach to underserved or financially excluded populations. * 20% were given away to bitcoin and XRP holders: Stellar.org distributed lumens to holders of bitcoin and XRP (19% for bitcoin holders and 1% for XRP holders). This giveaway was completed in two rounds: one round was completed in October 2016 and another was completed in August 2017. Stellar.org does not intend to conduct another round of lumen giveaways for bitcoin or XRP holders. The goal of this giveaway was to encourage bitcoin holders to explore and use Stellar, encourage exchanges to support lumen trading, promote the development of useful Stellar ecosystem technologies, and encourage Stellar integrations by financial institutions and service providers. With more people holding lumens and transacting on the network, the network itself will become more useful to those who build low-cost services on it. It is very important to note, especially with McCaleb’s history with Ripple, that members and directors of the SDF were not eligible to participate in the bitcoin program for any bitcoins or XRP that they held during the claim period. Lumens that were not claimed during the Bitcoin program went to the Stellar Build Challenge and towards the operations of the SDF. The Stellar Build Challenge rewards development, education, usage, and integrations in the Stellar ecosystem by awarding lumen to the creators of useful technologies, resources, and applications. * 5% were reserved for Stellar.org operational expenses
Token Allocation: Stellar’s token allocation by nature is very well defined. As mentioned earlier, 50% of the tokens were distributed freely based on a direct signup program. 20% more were distributed for free for Bitcoin and Ripple holders. This means there is no possible way to know who holds what in terms of Lumens, but this was also done to prevent ‘whales’ — or people who buy and own relative large amounts of a coin or a token’s circulating supply — from accumulating too many Lumens and manipulating the price to benefit themselves over others. The foundation itself only took 5% of the initial tokens to support the cost of operations and other expenditures. The Stellar Network has a built-in, fixed, nominal inflation mechanism: new lumens are added to the network at the rate of 1% each year. Each week, the protocol distributes these lumens to any account that gets over .05% of the “votes” from other accounts in the network.