Stellar (XLM): An Overview
Source: Stellar.org
Stellar is an open-source, peer-to-peer blockchain network that allows easy exchange and conversion of digital currency with any fiat currency and vice versa. The network aims to integrate distributed ledger technology (DLT)into traditional banking systems. Using blockchain technology, it facilitates easy, fast, and affordable cross-border transactions between any currency pair.
The network has its own native cryptocurrency —Stellar Lumens (XLM)which plays an essential role in facilitating transactions. It serves three main purposes:
- XLM is used as abridge currency for cross-border transactions, which makes the network capable of exchanging and processing different currency transactions.
- It is used to pay transaction fees on the network.
- The coin can be used forstakingand users can earn incentives for validating transactions on the blockchain.
At present, the circulating supply of XLM is26.4 billion. The coin is deflationary, with a maximum supply of50 billion. However, the coins cannot be mined, and each time a transaction is made,100 stroops (0.00001 XLM) are burned. In order to use the network, users are required to hold a certain amount ofStellar Lumens. This requirement helps in protecting the network against spam and avoids accounts with zero balance.
Unlike Bitcoin (BTC), which is used as a means to transfer value directly, Stellar was created to perform as an intermediary for easy currency conversions. It does not seek to replace traditional financial institutions but rather to enhance them by providing a single network for everyone to collaborate and work together.
How Does Stellar Function?
Source: Stellar.org
The Stellar network is comprised of three basic elements:
Horizon API: This works like a web service that allows applications, online banking apps, payment services, and mobile wallets to interact with the Stellar network. The API also supports the creation ofStellar Smart Contracts(SSCs).
Stellar Core: is connected to every Horizon server and maintains a copy of the digital ledger. It is responsible for handling the validation of transactions through theStellar Consensus Protocol (SCP)which facilitates reaching a consensus on the state of the network.
The Stellar Core secures the public history of transactions by entering ledgers into permanent external storage and guarantees the non-duplication of blocks within the network.
Stellar Network: This is the decentralized worldwide network of nodes that run the Stellar Core. Each node is run by either an individual or an organization. The network is distributed, which safeguards it from spam and ensures its proper functioning.
To validate transactions, the blockchain uses a uniqueStellar Consensus Protocolwhich is based on theFederated Byzantine Agreement (FBA) algorithm. This allows nodes to interact efficiently with each other to reach a consensus.
In order to reduce the transaction time and make the network more scalable, the network employs two important features:
Whose Slices: To validate a transaction, a node in the network interacts with other trusted nodes to form a web of trust or amini network known as a quorum slice. The node or validator collects votes from their slice to determine the validity of a transaction.
If the transaction receives approval from every node in the slice, then it is deemed valid. Stellar’s network is reported to process up to1,000 network operations per second as a result of the accelerated procedure.
Anchors: These are trusted entities within the network that enable the exchange of currencies on the Stellar blockchain. They are responsible for holding deposits and disseminating credit.
These features accelerate the transaction processing time and allow users to complete cross-border transactions in a fast, cheap, and secure manner.
Stellar’s Journey
Source: Stellar.org
The Stellar project was launched in2014 byJed McCalebco-founder of Ripple and founder of crypto exchangeMt. Gox in collaboration withJoyce Kim. At its launch, the network received$3 million in seed funding from a payment company,Stripein exchange for2% (2 billion XLM) of the initial launch.
It was launched initially as a hard fork of the Ripple (XRP) code but has since evolved into its own blockchain network. While the main customer base for Ripple comprises financial institutions, Stellar’s focus lies in developing markets and being the currency for individuals.
Along with the network, theStellar Development Foundation(SDF)was also launched. It’s a non-profit organization that supports the technical and commercial communities for the network, looks after the code, and publishes regular updates on the Stellar network.
When the network launched in 2014,100 billion XLM were created.5% of the supply was set aside to fund operations like spending or employee compensation, etc. The remaining95% was set to be dispersed among various entities:
- 50% was set to be distributed to people who signed up for an account.
- 25% was allocated to non-profit organizations focused on financial inclusion.
- 20% was to be distributed among Bitcoin and Ripple holders.
The foundation also sought to raise the supply by1% annually over the following five years. However, in2019the Stellar community voted to end this yearly supply increase. The current supply was also halved by 50%which led to the maximum supply being capped at50 billion.
Following aledger fork in 2014 that wiped back hours of transactions, Stellar revised its consensus protocol inApril 2015 and adopted Stellar Consensus Protocol. SCP was developed byDavid Maziereschief scientist of the SDF.
Major Developments
Source: Stellar.org
Some of the major developments/milestones of Stellar are as follows:
- March 2015: Stellar Development Foundation held apublic auction for stellars viaPoloniex andKraken.
- Nov 2015: Stellar upgraded its network, which introduced safety properties that secured the network against forking and reduced the codebase size.
- Apr 2016:3 BillionLumens were distributed amongBitcoin holders
- May 2017: The network introducedLightyear.iowhich focused on the creation of products and services on top of the Stellar network.
- June 2017: Another16 Billion Lumens were airdropped toBitcoin holders
- November 2018: SDF distributed up to500 millionXLM among users of the leading digital asset wallet provider,Blockchain.
- June 2019: The network upgraded toProtocol 11,which introduced improvements in transaction fees and network capacity.
- September 2019: Stellar partnered withKeybase for a major airdrop, giving away up to2 billionXLM over the next 20 months to Keybase users.
- December 2021:StarlightaLayer 2 protocol, was launched.
- February 2021: Stellar launched the stablecoinUSDC on its blockchain. The coin is pegged to the US Dollar at a 1:1 ratio and is backed byCircle— a fintech firm.
- March 2023: The Stellar blockchain launched its newSpacewalk bridgewhich linked it to Polkadot. The bridge went live onKusama,Polkadot’s test network. Moreover, the primary currency flowing through the bridge will be the USDC stablecoin.
2023 Roadmap
Source: Stellar.org
The 2023 roadmap for Stellar is focused on taking the network utility to the next level using three building blocks:
Make innovation easy and scalable – SDF will focus on the following strategic initiatives to make innovation easy and scalable:
- Soroban Development: This will involve the launch of a new developer-friendly, scalable, and Stellar-integrated smart contract platform.
- Scaling and Decentralization: To ensure that the network can handle increased traffic.
- Wallet Tools: To make it easy for developers to build Stellar wallets.
Win over builders – Following strategic initiatives will be implemented to fulfill this:
- Tier 1 Assets: This will focus on accelerating the growth of the most used assets in the world to be represented on Stellar.
- Access: To promote the development of accessible, easy-to-use, and cost-competitive apps.
- Soroban Adoption: To increase the contribution to the DeFi ecosystem with real, sustainable use cases leveraging smart contracts.
Focus on utility to build trust – SDF seeks to foster trust through utility and has framed the following strategic initiatives:
- Public Policy: To create a credible and reliable image among the public and private sectors.
- Public Profile: To raise platform awareness so that more companies and developers are building on Stellar.
- Products: To maintain and ensure the highest quality standard of Stellar flagship wallet products for new entrants and power users.
