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Stellar Lumens

By Victor & Grayson
April 12, 2020

Disclaimer

The following review is not financial advice. Coin Grades’ ratings and letter assignments reflect the technical and practical viability of these cryptocurrencies in the eyes of the Coin Grades team. As always, we encourage you to do your own thorough research from multiple sources before choosing to invest in any cryptocurrency. The Coin Grades team was not compensated for this review. Some members of the Coin Grades team do hold Stellar Lumens in their personal investment portfolios.

Overview

Stellar was founded in 2014 by Jed McCaleb, one of Ripple’s original co-founders. The primary goal has been to focus on financial accessibility and inclusion, particularly for nations with little liquidity. This led to the phrase, “banking the unbanked.” Originally released as a decentralized payment network, Stellar operates using the Stellar Consensus Protocol, which does not require mining. There are roughly 50 Billion XLM tokens in existence. There were originally 100 Billion, until half the supply was removed or “burned” in late 2019. The Stellar Development Foundation (also founded in 2014) makes all the executive decisions regarding the network. This leads to many feeling that XLM is centralized. This does not change the fact that the network itself is decentralized, and the code remains open-source.


Decentralization

About 40% of the total XLM amount is currently in circulation, with the remaining 30 Billion tokens to be distributed over time for both funding and given out for free to users. Originally, Stellar’s decentralization concerns were much more drastic, with only 20% of the total supply being in circulation. This was before The Stellar Development Foundation removed, or “burned” 50 Billion XLM, which is half the total existing supply. The SDF continues to distribute Stellar Lumens in large quantities through airdrops to new cryptocurrency users. Their goal is to facilitate adoption through exposure. Stellar still remains one of the less decentralized cryptocurrencies, but decentralization should only increase over time as more tokens are distributed.

There are ongoing questions as to what level the network itself is built to be decentralized. These questions ramped up in May of 2019, when the entire blockchain stopped for 67 minutes, due to an inability to reach consensus across nodes. No transactions were processed during that time, though funds were safe. Ideally, a decentralized network should not rely on a small number of nodes to keep running. It should have a failsafe, in case nodes fail momentarily, but it should not need to stop entirely.


Security

Stellar requires users to hold a minimum amount of XLM in their wallet, in order to participate in the network. By requiring a minimum amount, it increases the barriers to entry, so nefarious individuals cannot gain control over the network by endlessly creating new accounts. This makes the network secure, as it prevents bad actors from spamming. However, just as with decentralization, XLM loses points here because of the blockchain’s need to stop functioning when critical nodes cannot reach consensus, which is what happened in May, 2019.


Speed & Scalability

The Stellar network is extremely fast, and has transaction fees that are near $0, paid in XLM. The network is also able to support a huge amount of financial assets, while continuing to operate at high speeds. In terms of scalability, XLM is still far behind the VISA payment network, boasting a network speed of around 1,000 transactions per second. VISA, by comparison, can handle up to 24,000 TPS. It should be noted that no cryptocurrency has yet surpassed VISA, except on paper. There have been talks of introducing a lightning network layer on top of XLM, which would further improve scalability.

Stellar is one of the fastest mainstream cryptocurrencies around. As mentioned under security and decentralization, the blockchain has the potential to stop altogether, but this occurrence is extremely rare. Otherwise, it takes mere seconds for any amount of XLM to be sent from one address to another. When dealing with centralized exchanges, XLM transactions do require a “memo,” which is an addition to the address. This can slow down the process slightly. Ideally, XLM would be transferred to and from decentralized exchanges, so this wouldn’t be a problem if the cryptocurrency were used for everyday transactions.


Energy Consumption

XLM is very energy efficient, since the blockchain does not require mining. The Consensus mechanism Stellar uses does not require much computing power. Due to this, XLM is one of the most environmentally-friendly cryptocurrencies that can support sizable network volume.


Community

Since its heyday in 2017, the Stellar community has dwindled along with XLM price, but many continue to support the project because of its mission and extreme speed. Over the last two years, there has been much concern from the community about the SDF’s handling of the airdrops and clarity surrounding distribution. There has also been skepticism about whether or not the Stellar network is actually being used by IBM. The community continues to be torn on a number of issues, including the recent 50% supply burn.


Team

The team behind Stellar includes a wide variety of people from different backgrounds. Danelle Dixon became the CEO of Stellar in March, 2019, which has ushered in a new era for the project. Over the last year, the SDF has worked on completing many of the points on their roadmap. In 2019, they have developed Horizon, which is an API server that allows for developers to connect applications to the Stellar network. The team has also been able to improve overall network performance. However, much of the foundation’s website still needs to be flushed out, and there is a partial lack of important detailed information accessible to the everyday person. This can be observed when trying to look for specific information, and a dead-end is often reached. Marketing can often be the Achilles heel for many crypto projects. For now, Stellar has chosen to focus on providing accessibility to their network, as well as distributing tokens and creating infrastructures to facilitate adoption in the future.


Adoption

Stellar focuses much on exposure and encourages adoption through ongoing token distribution. This has occurred both through Keybase and Blockchain.com. The SDF has given out as much as $50 worth of XLM to each new user. In addition, the Stellar network is currently being used by IBM for their World Wire project, a real-time settlement platform that runs across 72 countries and 47 different currencies. It was thought that this should increase the value of XLM, but actual activity on the Stellar network has been disappointing.


Liquidity

While not boasting as much trade volume as some of its competitors in the top 105, XLM is still one of the more liquid cryptocurrencies out there, in terms of accessibility. It trades on most international cryptocurrency exchanges, and is accessible through Coinbase, the go-to app for retail cryptocurrency buyers. Stellar also has its own decentralized marketplace, where numerous cryptocurrencies and fiat currencies can be exchanged. This can be accessed through StellarTerm or StellarPort. Both exchange websites require only a private key to use, and one can also purchase tokens that operate on the Stellar blockchain. Unfortunately, the SDEX (Stellar Decentralized Exchange) operates on very low volume, so larger orders are very difficult to fill.


Potential

The number of XLM addresses nearly doubled in 2019. In addition, the SDF has increased their number of employees by over fivefold in the same time period. This seems to indicate that there is a lot of growth occurring behind the scenes. XLM is positioned well to benefit from more capital entering the cryptocurrency market, since the SDF has been fostering the use of Stellar Lumens through distribution and building financial infrastructures where they are needed.

Summary

While Stellar is an individually fleshed out project, it is still oftentimes seen as the little brother to Ripple. This is because they both have a lot in common. Stellar was founded by one of the co-founders of Ripple, and both seek to be an intermediary for traditional institutions. Both projects are incredibly similar in their architecture, speed, scalability, and energy consumption. That being said, Ripple has a larger and more established team, as well as more sub-projects and cases of adoption. So with that taken into consideration, it is clear that Stellar faces an uphill battle.

However, Stellar still has some benefits when compared to Ripple. Stellar has a more definite use case for its cryptocurrency, and the team behind it has been much more reasonable when it comes to managing the large supply. Stellar also is targeting the niche of banking the unbanked via cryptocurrency, which Gartner says will be one of the largest developments over the next 5 years. Stellar also has been growing rapidly over the past couple of years and while many things are unclear or uncertain, it appears that the project is still marching forward full speed ahead.

Coin Grade


B+

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XLM/USD Price Chart






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