#XLM: The Token of the Future
Let’s be honest. During the early part of the year it was the pursuit of money, not viable use case, that fueled the recent wave in crypto. Bitcoin originally began with the aim of creating a decentralized peer-to-peer payments network to balance the playing field for the little guy. These days it’s touted as “digital gold”. Tesla and Microstrategy have now purchased nearly $5 Billion in Bitcoin and are holding it in cold storage. Jack Dorsey, owner of Twitter and and a big voice for Bitcoin, holds at this writing an estimated $400M worth of Bitcoin on the books.
Dogecoin was created as a joke. It essentially laid dormant for years before breaking into the headlines when Billionaire tycoon Elon Musk publicly proclaimed that not only was it the best crypto, but that it was “going to the moon” (literally). In addition to committing to a campaign of promotion on Twitter, he felt it was important enough to schedule a public Clubhouse chat with the CEO of Robinhood to discuss Dogecoin further (the Robinhood app has prominently featured the token). Following this further interest was shown by fellow Billionaire Mark Cuban. Within a period of 4 months, the token price had soared, gaining over 12,000%.
Later in the year, it was revealed that Robinhood reported that crypto made up over 50% of its transaction-based revenue in the quarter with Dogecoin accounting for 62% of that. There has been no application built on Doge to this date.
Elsewhere in the cryptoverse is the proof-of-stake/Defi craze which has taken the space by storm. Most of these chains vary little between them in terms of structure and as SEC chairman Gary Gensler stated:
And then there’s Stellar…
Stellar created the Stellar Consensus Protocol (SCP) which lends from the Byzantine agreement providing two appealing properties. Consensus can be fast and efficient while at the same time allowing trust to be entirely decoupled from resource ownership.
While proof-of-stake has become very popular, a large downside of PoS (Proof of Stake) is the need for network validators to lock up capital simply to prove their trustworthiness. Stellar developers Script3 pointed out in their Medium, “Why Stellar is the Perfect Blockchain for Defi” that this:
When it comes to actual use of a blockchain no one comes close to Stellar. Just look at the stats! When you compare daily transactions to other chains the evidence is overwhelming.
Additionally, can you name another blockchain (like seriously) that’s sat at more tables than Stellar:
Ukraine government picks Stellar Development Foundation to help build digital currency
So what is XLM?
Stellar was designed with its own built-in currency called Lumens, for which the call letters are XLM. In order to create friction on the network and avoid it from being crowded with spam, Lumens (XLM) were created. XLM are the required currency to pay for all transaction fees on the network. In addition 1 lumen is required as a minimum balance to create an account on the network. On Stellar, before the wallet can receive an asset, the owner of the wallet must notify that they are willing to accept it, these are called trustlines. An additional 0.5 Lumens are needed to add each trustline. Currently there are over 5.5 million accounts and over 31,000 unique assets on the network with this number will grow indefinitely.
A good example of this can be found looking at the way Litemint utilizes Stellar to issue NFTs on the network. Litemint is a digital collectibles and NFT marketplace on Stellar. In addition to every new user that signs up having to create a new account (1 XLM) for each NFT there is a requirement of .5 XLM to create a trustline. Each NFT on Stellar will burn 1.5 XLM forever (1 XLM account reserve + .5 to manage data for IPFS hash.
Another example is Franklin Templeton who are in the process of exploring Stellar to host their Blockchain enabled US Government Money Fund. As stated in their SEC filing:
A great question that usually comes up at this point is what happens if XLM’s token price sky rockets making opening accounts too expense to operate. Thankfully there is also a great answer. As stated earlier the goal of having these minimum fees is to create friction on the network and avoid it from being crowded with spam. As a result it’s in the hands of the community of validators to vote in adjusting the fees so that they remain true to its original purpose. Being that Stellar is decentralized and based on the SCP and not PoS, the votes won’t simply end up into the hands of the elite and richest holders. This is another strong advantage to Stellar.
In addition to the functional aspect that XLM plays in the network there is another valuable use that is often overlooked. At the core of the network is the built-in function called the Stellar Decentralized Exchange (SDEX).
This to me is when things get interesting as the true power of XLM and Stellar is revealed. As I already mentioned there are nearly 6 million accounts (locking at least 1 XLM for opening an account and .5 XLM for each trustline) and there are over 31,000 unique assets (which all require XLM to mint) but now at the core there’s a global marketplace where anyone in the world can trade or purchase any asset using the most liquid unit of value on the network, XLM. What’s even more exciting about the SDEX is that because Stellar is open source anyone can create a user interface for the SDEX. The wonderful part however, is that no matter how many there are they will tie into the same Decentralized Exchange. As the network grows and matures this will make Stellar the most liquid exchange in the world.
Imagine you wanted to trade ADA (cryptocurrency Cardano). If you take a look at Coinmarket Cap, the markets for ADA are spread across different exchanges and pairings, with each exchange having their own liquidity etc. With the Stellar Decentralized Exchange it doesn’t matter to the user. If you want to trade ADA which is anchored to the Stellar network by a trusted party, you can choose to use whichever interface-all tied into the SDEX on the back end- and can care less about the pairings. All they know is that they can send their stored XLM to fetch whatever they need…and the good news keeps coming…not only can they buy whatever asset they want but, thanks to Path Payments, can also guarantee that they will get the best pricing.
Going back to Litemint (see video above) people from all over the world are heading to his online store to shop. Path payments are also used for cross-currency payments through SDEX offers. On Litemint buyers and sellers are always free to choose any currency they want to spend or accept because they use path payments to resolve all trades. I can choose to send XLM while the Seller chooses to accept Chilean Pesos for instance.
Coinqvest, another Stellar partner, provides digital currency checkouts that automatically goes from crypto to a merchant’s bank account or crypto wallet. Coinqvest checkouts are perfect for international markets. Buyers can chose to pay in their local currency or XLM while merchants get paid with their desired currency. The conversion and fund transfer happens using path payments on the Stellar Decentralized Exchange and integrations with asset issuers on the Stellar Network.
For years Bitcoin has been promoting the Lightning Network however Stellar is a far superior option. Not only can you essentially do the same thing and send your Bitcoins peer-to-peer but you’ll have access to a global collection of currencies and assets to choose from on a compliant network.
The Stellar Development Foundation’s mission is to maintain the Stellar codebase, support technical and business communities around Stellar and engage as a speaking partner to regulators and institutions. Nowhere in that mission involves the need to promote a token. As the CEO of Clic.World, Andrea van Zyl, shared with me on my podcast, Jed never set out to promote a token; he wanted to created a solution to a problem. Nothing that I’m writing here negates that very mission. Stellar will always be the most accessible, most fair (refer back to the flaws of PoS) blockchain on the planet. Even better, any volatility in price has zero effect on the use of the network which makes it ideal for handling securities and Central Bank Digital Currencies. What I am saying is that buried within this special protocol is a token that has the ability to open up a world of possibilities.
In a twitter thread dated April 1, 2021, Stellar community member Wouter Arkink-known online by the pseudonym pickingunicorns-laid out the value proposition hidden within the design. “You can spend BTC only when someone else wants to receive BTC…you can spend XLM no matter what the counter party wants to receive. So in addition to developers that require XLM to build on the network, assets that require them and trustlines that require them, millions of people around the globe will learn to see the benefit of keeping an allocation of XLM in their portfolio as it will be the key to access a wide range of assets across the globe.
At some point the proper light from the mainstream will shine on Stellar. Unlike others in the past, Stellar and XLM will prove to be the perfect example blockchain can have to positively change the way people interact with the transfer of value. As protocol 18 advancements come to the network unlocking Turing Signing Servers (TSS) and partner organization such as Satoshi Pay and Pendulum provide bridges for Stellar to access Ethereum and beyond the vision of Stellar will soon become a reality for all.
