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An Introduction To Stellar And XLM: Mission, Control, And Consensus

This project is an enigma. On the one hand, Stellar is not for profit, it doesn’t have owners or shareholders, and strives to be somewhat decentralized. On the other, Stellar is a compliance-focused protocol, and its directors often meet with shadowy organizations like the World Economic Forum. According to their website, the protocol seeks “to unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered.” Fine, but, at what cost?

Related Reading | Stellar To Power VISA’s New Partnership, XLM Begins Breakout

According to the legend, Stellar is a Ripple fork. However, as you’ll see below, that’s not exactly true. Founder of the infamous Mt. Gox cryptocurrency exchange and co-founder of Ripple, Jed McCaleb, launched Stellar in 2014. Joyce Kim, a lawyer, was his partner in the venture. Stripe financed the initial operation. The native currency of the whole Stelar ecosystem is called Lumen or XLM.

Stellar’s Mission And Approach

The recently appointed CEO and Executive Director of the Stellar Development Foundation, Denelle Dixon, was recently interviewed by Securities.io. “The vision is big: Stellar and SDF hope to unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered,” she told them.

On its website, Stellar justifies its existence by telling us. “The way the global financial establishment is structured today, people are born into an economy just like they’re born into a political system. Stellar is a way out: it lets people participate in a worldwide, stable, financial network regardless of where they live.”

The controversial aspect is Stellar’s approach. It’s completely opposed to the cryptocurrency ethos. The company wants to build a bridge between the traditional banking system and the cryptocurrency space, but by following the traditional banking system’s rusty rules. “The software has always been intended to enhance rather than undermine or replace the existing financial system.” 

In other words, Stellar aims to provide a platform with which all financial actors can interact without any friction. All financial actors that are properly identified and approved by the legacy system, that is. 

What Is The Stellar Consensus Protocol?

As a consensus mechanism, Stellar doesn’t use Proof-Of-Work or Proof-Of-Stake. It uses its own Stellar Consensus Protocol (SCP.) For a formal definition, let’s quote the paper that Stellar presented at the Symposium on Operating Systems Principles. How did Stellar solve the Byzantine general problem?

“With SCP, each institution specifies other institutions with which to remain in agreement; through the global interconnectedness of the financial system, the whole network then agrees on atomic transactions spanning arbitrary institutions, with no solvency or exchange-rate risk from intermediary asset issuers or market makers.”

And, what does the Stellar Consensus Protocol accomplish exactly?

“SCP lets Stellar atomically commit irreversible transactions across arbitrary participants who don’t know about or trust each other. That in turn guarantees new entrants access to the same markets as established players, makes it secure to get the best available exchange rates even from untrusted market makers, and dramatically reduces payment latency.”

For the system to function, Stellar relies on Federated Byzantine Agreements. For a description of what those do, let’s quote Bit2meAcademy:

“For the FBAs to function properly, participants must wait for the majority to reach a consensus. In this way, participants know which transactions are most relevant before starting to settle them. So when the majority of the network takes a position, the network accepts the transaction and makes it unfeasible to roll it back for an attacker.

In other words, the Stellar Consensus Protocol tends towards centralization and just ignores most of the problems that Proof-Of-Work solves. It does use significantly less energy, though.

XLM price chart for 09/04/2021 on Bitfinex | Source: XLM/USD on TradingView.com
Key Characteristics Of The Stellar Blockchain

  • Almost all of the Stellar validators are corporate entities of some sort. Or are maintained by the  Stellar Development Foundation. However, “anyone can install the Stellar software and join the consensus process.”
  • Each Stellar Lumen account must have a minimum of XLM in them. This minimum balance protects the network from spam accounts.
  • The Stellar Lumen’s mission is to pay for gas to conduct operations inside the Stellar ecosystem.
  • The Stellar ecosystem was not designed for direct payments. The idea is to provide a platform to serve as an intermediary in currency exchange.
  • The system “doesn’t privilege any particular currency.”
  • The code is open source and auditable by anyone.
  • “The Foundation helps maintain Stellar’s codebase, supports the technical and business communities around Stellar,” great! “And is a speaking partner to regulators and institutions,” ow.
  • Stellar recently signed a partnership with “crypto-asset risk management solutions” firm Elliptic. That means, “Elliptic’s monitoring, compliance, and analysis software now incorporates support for XLM, the native asset of Stellar.” Ow.
  • With the recent protocol 13 update, Stellar allows “fine-grained control of asset authorization.” This means the issuer of an asset can deauthorize accounts and don’t let them use the asset. This means, more control and permissions.
  • The Lumens had an inflation rate of 1% per year. In September 2019, Stellar removed inflation of Lumens. Also, the Stellar Development Foundation burned 55B of their Lumens. 

So, Is Stellar a Ripple Fork?

In its FAQ, Stellar goes back to its origins:

“The old Stellar network launched in July 2014. The node software (stellard) was a modified fork of the Ripple node software (rippled). The ledger was completely new and contained no history from Ripple’s network.”

Related Reading | Stellar To Introduce AMM Functionality, What This Means For Its Ecosystem

So, the software was originally based on Ripple’s, but the ledger was brand new. Nevertheless, in 2015, when they released the Stellar Consensus Protocol, they re-wrote the software from scratch. From that point onwards, Stellar doesn’t share any code with Ripple.

Featured Image by Nicole Avagliano on Unsplash – Charts by TradingView

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Stellar Network To Power New Savings API Launched By Wyre

Stellar Development Foundation (SDF) CEO, Denelle Dixon, celebrated the result of a partnership with the payment infrastructure Wyre. This company has released a new Savings API for FinTechs to have access to a yield earning and savings product.

Based on the Stellar Network and its version of the stablecoin USD Coin (USDC), created by the CENTRE consortium.  The API provides an annual yield much higher than the one offered by most traditional bank accounts backed by the U.S. dollar.

This average has been estimated at an 0.06%, according to data provided by the SDF. With the Wyre Savings API, institutional and corporate clients receive more yield for their capital, can access tools for treasure management and can power earnings products for their clients.

Stellar Supports Growth Of Blockchain-Based Savings And Payment Features

The API has been designed to be an easy on-ramp to those Stellar-based assets, such as stablecoin USDC, and provided a “seamless” Savings API, according to an official post published by the SDF. Ioannis Giannaros, Wyre CEO, said the following on the cooperation:

With this Savings API, we’re giving FinTechs faster access to deposits and the confidence of doing business with a licensed money transmitter. This is a huge win for early stage FinTechs looking to quickly expand the functionality available to their users– particularly those seeking to accept funds and offer stable currency savings with earning capability in the developing world.

Giannaros said to be excited about this launch and the possibility for their clients to leverage its savings functionality with yield payouts.

The Stellar Development Foundation and Wyre have been working together for quite some time. At the beginning of 2021, the SDF’s Enterprise Fund made a $5 million investment in Wyre.

The organization believes that this new API, in combination with the cost-efficient Stellar-based rail for financial services, will power a new set of products, such as the one launched by Wyre.

The Wyre Savings account will make monthly payments of its earnings. This can be compound in value, the SDF clarified, and feeless to access the on-ramp fiat value. SDF’s CEO added:

As a Stellar anchor, Wyre’s industry-leading payment APIs — including its savings functionality — provide simple on- and off-ramps to Stellar USDC and high-value offerings to partners in developing countries. By making it easy for FinTechs to accept funds and offer their users a way to earn on savings, Wyre is simplifying and enriching development on Stellar and helping to further strengthen the network as a whole.

Stellar’s partner has operations in over 50 countries and process over $5 billion ins transfers executed since 2013. In the U.S., Wyre has a licensed to operate as a money transmitter in 27 states. One of the first companies to use their Savings API is the FinTech Airtm, a company with a great presence in Latin America.

Users in this region will be able to save money and accrue earnings with the Stellar USDC. Also, it will give many unbank users the option of keeping their savings in U.S. dollars. Josh Kliot, Head of Product and Co-Founder at Airtm said:

Using Wyre’s Savings API and Stellar USDC to provide our Latin American clients the ability to accrue earnings has been a tailwind for incentivizing their funds to remain as dollars instead of withdrawing to devaluing local currency.

XLM trades at $0.41 with moderate losses across the board.

Stellar Lumens XLM XLMUSDT
XLM on a downtrend in the daily chart. Source: XLMUSDT Tradingview
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How Stellar’s Growth In Q1 2021 Could Foster Further Adoption

Stellar Development Foundation (SDF) has issued its Q1 report. In an official post, the SDF reiterated the importance of its main strategic pillar around Stellar’s blockchain: usability, trust, adoption, and sustainable use cases.

In the past months, Stellar’s ecosystem has started growing on top of this vision according to the SDF. Data provided by the report indicates that the platform has seen a YoY increase in its total accounts standing at 11%.

The total number of operations processed on the network has increased by 100%. Similarly, payments have incremented and 160% with an 84% rise in “relevant assets” with a 29x number of on-network transaction volume made with them, according to the report.

Therefore, Stellar Network’s registered a grown in the number of “real financial instruments” using its platform as a solution. These assets are tethered to fiat currency or stocks in the traditional market.

Stellar enables bull-run in the crypto market

In addition, the Stellar Development Foundation managed to invest a total of $6,5 million in companies like Wyre, Cowrie Integrated System, and DSTOQ via the Enterprise Fund. Every new cooperation put Stellar closer to consolidate its pillar and it’s a new step towards mainstream adoption.

SDF’s Marketing team developed a new case study featuring DSTOQ, Stellar’s latest Enterprise Fund recipient. This case study highlights DSTOQ’s latest business results and features several customers speaking to how DSTOQ empowers them to attain financial freedom.

SDF and Circle’s partnership to launch stablecoin USD Coin (USDC) on Stellar marked an important milestone for this blockchain. As consortium CENTRE, the organization created by Circle and Coinbase to support USDC, seeks to be more independent from Ethereum, Stellar took a key role.

(…) pairing the world’s fastest-growing USD stablecoin with the world’s fastest-moving network. Businesses and individual users are now able to leverage USDC while taking advantage of Stellar’s low cost, speed, and security features.

As shown by recent data from Glassnode, stablecoins and their market cap increase are apparently correlated with cryptocurrencies’ performance. The more demand for these assets, the more institutions, and retail investors need them to enter the market, as seen below.

Stellar Lumens XLM
Source: Glassnode

XLM is trading at $0,60 with an 8.6% correction in the daily chart. In the weekly chart and monthly chart, XLM has good performance with 12.2% and 53% profits respectively.

Stellar XLM
XLM with moderate losses in the 24-hour chart. Source: XLMUSDT Tradingview
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Why Uganda chose Stellar Lumens to power the currency of its new city

Per a report by NBS Television, Uganda is planning to build a futuristic city. The project has received the green light from the local government and is set to be completed by 2036. American singer of Senegalese origin, Akon, has been awarded one square mile of land to carry out the project.

To be named “Akon City” it will use a cryptocurrency based on Stellar Lumen’s blockchain to power the economic sector, AKoin. With a similar project to be executed on his native Senegal, the project cost is estimated to be as high as $6 billion.

According to the blueprints on the Senegal city project, Akon plans to build malls, schools, police departments, waste management services, hospitals, and other buildings for recreation and culture. The singer expects to drive and contribute to the development of these countries and “bring opportunities” to its inhabitants.

Stellar Lumens, the perfect place for AKoin

In a previous post, Akon explained why he has chosen Stellar to issue its Akoin. Claiming that blockchain will help emerging markets, like Senegal and Uganda, the singer believes Stellar will help to strengthen the financial infrastructure. Akon claimed:

Bringing the benefits of blockchain to Africa is our core mission at Akoin. We aim to improve Africa’s financial infrastructure and lower costs by removing intermediaries and increasing transparency.

The end goal is to “lower” economic barriers for all Africans, said Akon. Stellar is a platform with “speed and scalability”, therefore, the singer believes it fits with Akoin uses cases and the applications plans for its ecosystem. Akon adds:

Stellar Development Foundation has also established a wide network of charities that accept Stellar Lumens as a form of donation — and philanthropy is at the core of the Akoin ethos and the Akoin Foundation. These factors (…) make Stellar an obvious choice for Akoin.

XLM is rallying on the 24-hour chart with 18.2% profits. Over the past week, XLM has record 27% gains and 23.6% in the monthly chart.

XLM on a 24-hour rally. Source: XLMUSDT Tradingview
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Could the EU use Stellar Lumens to issue its CBDC?

On a Reddit post, Stellar community has discussed the most recent developments on the possible issuance of a central bank digital currency (CBDC) by the European Union. According to statements by the president of the European Central Bank, Christine Lagarde, a decision on the project will be made by mid-year.

Lagarde has had an unfavorable position on cryptocurrencies, CBDCs and digital assets. The president of the banking institution has been more in favor of stablecoins. However, in an interview with Bloomberg, Lagarde said that the decision on whether to approve the Digital Euro will be made by the ECB’s Governing Council.

Outlining the roadmap for the Digital Euro, ECB president said that they will soon publish an analysis of the public consultation process that was opened for the project. The institution will then deliver these results to the European Parliament and receive the green light to pilot the CBDC.

Lagarde estimates that the subsequent assessments will last between 6 months to 1 year. In total, the deployment of the Digital Euro may take 4 years. The ECB President stated:

Because it’s a technical endeavor as well as a fundamental change because we need to make sure that we do it right. We owe it to Europeans; they need to feel safe and secure. They need to know that they are holding a central bank-backed […] equivalent of a digital banknote with the same level of security. […] We need to make sure that we are not going to break any system but enhance the system.

Stellar’s features would favor Digital Euro

Lagarde stressed that the “intermediaries” that depend on the current system will be able to continue to operate with the current institutions, credit lines and cash which ” will coexist” with the CBDC. The backbone of the project is to create an improved payment system “safe, solid and secure for the Europeans”.

In the Stellar community many users speculated about the possibility of the CBDC be deploy on top of Stellar Lumens blockchain. One user involved in the discussion stated that the institution could opt for this option to take advantage of the benefits of a “public-private partnership”. The user stated:

they are not collapsing the current system to go secretive again. the secrecy of the whole current financial system is its biggest issue and the reason nobody trusts the bankers. (…) the money is going to have to be a public utility, trusted by everyone.

Users in favor of this thesis highlighted that Stellar Lumens meets the requirements described by Lagarde: capacity to settle transactions, cross border remittance, and medium of exchange capabilities.

The community failed to reach a consensus. Most users believe that the banking institution will opt to use a private blockchain built specifically to host the CBDC. However, they did not rule out that the Digital Euro could be “interoperable” with other CBDCs and could even be convertible to cryptocurrencies on the Stellar Lumens, Ethereum, or other blockchains.

XLM is trading at $0,4 with 4.1% losses in the last day. On the weekly chart, XLM has 11.7% in gains.

Stellar Lumens XLM
XLM with bearish momentum on the 24-hour chart. Source: XLMUSDT Tradingview