Stellar Lumens (XLM) – What is XLM? – Under promising and over delivering

Stellar Lumens (XLM) – What is XLM? – Under promising and over delivering

Stellar Lumens (XLM) is perhaps one of the most controversial coins out there. For one main reason that the founder of Stellar Lumens is the famous/infamous founder of Mt.Gox. And not only that he founded Ripple (XRP). Then he decided to leave that platform to start Stellar Lumens – a near competitor with Ripple. But Jeb McCaleb has possibly done more than anyone else in the cryptocurrency world to drive adoption and success. Whatever you think about McCaleb – good or bad – He has a proven track record of building successful projects. And that is what I’m going to talk about, his most recent endeavor, Stellar Lumens.


Stellar Lumens:

Stellar Lumens and possible use cases:

The Stellar platform is trying to address a few developing problems in the world – banking the unbanked, micro-transactions, and remittance. Or in other words, they are trying to build a better, faster, and decentralized bank for the world. The Stellar Lumens platform offers pretty much all the normal features that banks offer. They do remittance payments – sending money across boarders – trying to make it faster and more efficient to pay someone abroad. Stellar Lumens provides micro-payments for businesses at a low fee of about $0.01 for 600,000 transactions. In addition, Stellar let’s agency banks do mobile branches which further reduces bank’s costs and overhead – and in turn reduces the cost to customers. Finally the stellar platform allows customers to easily send mobile payments or assets to each other, regardless of their banking provider. All of these use cases combined make banking the unbanked easier and encourages banks to use stellar for it’s wide variety of options.

Some other benefits:

Stellar’s platform is quick, offering settlement times in about 2-5 seconds – it’s one of the faster cryptocurrencies out there. Some estimates of the maximum transactions per second range from 1,000 tx/s to 10,000 tx/s. But right now their platform is capable of roughly 1,000-2,000 tx/s. Other benefits are it features automatic currency exchange, compliant with regulation, mobile payments, and a hopeful international reach.


The platform is also developer friendly and can host ICOs like NEO or Ethereum. If we remember from Ethereum’s price jump last june (2017) to 400ish, a lot of that price increase was due to demand from ICOs. In fact, with the insane rate of transactions it might even be a better platform than Ethereum – but only time will tell. Stellar Lumens has tiny transaction fees which could make it attractive to developers.

The protocol allows startups to customize everything – token distribution, payments, and different offers. The stellar platform meets both banking needs and potential ICO needs. But even further, the decentralized exchange within the stellar platform allows ICOs to begin trading immediately upon launch, without the need for an exchange like coinbase. This is perhaps one of the most powerful and untapped potential Stellar Lumens has to offer the market place.


The Stellar network:


The Asset portion requires that I define what Anchors are before you read it. Anchors in the Stellar Network play an important role. These are the “gatekeepers” between existing assets and the Stellar Network.

Anchors interact with two bridge servers, a federated server and a compliance server maintained by the Stellar foundation. An Anchor is expected to make payments, monitor their accounts, respond to requests, and comply with Anti-Money Laundering regulations.

Basically the role of Anchors is to provide the main source of asset lending/exchange for stellar’s user base. So thus the more Anchors there are the greater value Stellar. Here’s a list of the current Stellar Anchors.

Asset transfer:

Stellar’s network is used primarily for sending any pair of currencies but it can also be used for asset . Stellar’s network allows for near instant payments through Anchors. Anchors are banks/entities that issue assets on Stellars Network. Holding an asset is like holding a line of credit from the Anchor. If you want to exchange an asset via Stellar, you hold the credit from the Anchor but when you offer credit to the Anchor at some point, you will then receive that asset.

These assets could range from contracts, deeds, or various other lines of credits. So you aren’t exchanging actual assets – like a car deed – but credit for assets.

Stellar further has something called trustlines within the network. These are constantly monitored via the distributed ledger. This gives stellar the power to limit the amount of credit that anchors can extend.

One potential interesting thing about credited assets is that they are all uniquely identified by specific code – asset and issuer specific code. This gives Anchors the ability to track assets easier. And in addition, Anchors can vet credit holders through permission access or they can freeze access to credit – again much like a bank. 

Decentralized exchange:

As mentioned earlier the Stellar Network has the ability to host exchanges between assets on its platform. The user can convert between two traded assets but it has to be a all or nothing. The user then is never left with an unwanted asset. So while this is beneficial for converting some types of assets. Stellar’s exchange is likely not very well suited for crypto traders. But never the less better than some of the exchanges in the space. 

Lumens (XLM), Stellar’s native currency:

The Lumens or XLM are the native asset of the stellar network. Meaning – much like xrp in ripple – they are built into the network. An asset is how the network refers to an item of value that is stored on the ledger. But Lumens are also a digital currency like Bitcoin or many cryptocurrencies. Xlm is essential to the stellar network because they allow people to move money/assets around the world quickly and to conduct transactions between different currencies quickly and securely. So unlike Ripple’s XRP, Stellar’s XLM are needed for transactions and not merely a option. 

But why bother having a native currency?

Well, the two main purposes for Lumens existence are that they play a anti-spam role and facilitate multi-currency/cross-asset transactions.


Lumens distribution, funding, and inflation:

To begin with 100 Billion Lumens were created as per the protocol. But then 95 billion will be distributed to the world. The other 5 billion are used to fund the stellar foundation – as they don’t profit from transactions fees. According to the stellar website the lumens distribution plan is as follows:

“The initial lumens (95 Billion) held by SDF are 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”

In addition their funding plan is the following:

  1. 5% of the initially created lumens on Stellar. We periodically auction these lumens on various exchanges
  2. Charitable contributions from companies or individuals
  3. Foundation membership. For more information on membership in the Stellar Development Foundation, please click here
  4. In 2014, SDF received a loan of $3,000,000 from Stripe which was subsequently repaid with 2B lumens

However, when we look at addresses containing stellar it looks like things are far more concentrated than I originally thought. According to the stellar rich list 4 addresses hold 83.94% of the Lumens currently available. I assume those 4 addresses are owned by the stellar foundation or members of the stellar foundation – but I have no way of verifying if that is indeed the case.

Finally stellar creates new Lumens at a rate of 1% per year. That could be impacted slightly by people losing their XLM, XLM owners passing away, or other human error. 


Pros and Cons:


  1. Easy node deployment – I haven’t talked about this much but the node deployment, and thus network decentralization, is pretty easy to increase.
  2. Voting. Anyone who owns lumens is able to easily vote for where the transactions fees should go.
  3. fast and scalable transactions.
  4. Potential for an ICO platform
  5. Jeb McCaleb


  1. A large portion of Lumens are owned by the foundation/founders.
  2. Few Anchors available right now. I’d personally like to see the variety of assets available increase.  
  3. Jeb McCaleb

The reason why I list Jeb as both is because I don’t really know what I think about him. The way he tried to dump xrp and destroy ripple was very unprofessional and doesn’t speak well for his character. But he also has a history of building up projects. Ripple and Stellar are both in the top ten and he helped create both of them. In addition, there’s the whole Mt.Gox incident. But McCaleb handed over the operation of the exchange to Mark Karpeles before the major hacks and bankruptcy. McCaleb is a very odd person within the space so I feel as though I can’t really comment on it.  



I think Stellar Lumens is an interesting platform. It has the potential to be so much more than just a currency exchange platform. They have ICO capability, asset transfer capability, banking (which is a huge market) and regulation in mind, as well as a built-in exchange. The ability to set up for mobile banking and the ease of transferring money between assets is huge. The only real downsides I see is the large concentration of Lumens in the hands of a small group of people and the platform lacking Anchors. However, the number of Anchors might increase as the Stellar Foundation grows its reach. As I’ve been going through the top ten coins, writing an article on each, Stellar has a lot of what seems to be valued right now. Frankly, I could see this taking Ripple’s place. In my opinion their platform is one of the most diverse coins out there. Their motto should be “we under promise and over deliver.” 


I try to be as unbiased as possible but my opinions are my own. Further, I own no XLM, right now. Although I owned a small portion back in December.

As always, do your own research and do not invest more than you can afford to lose. Best of luck.


One Reply to “Stellar Lumens (XLM) – What is XLM? – Under promising and over delivering”

  1. At one point, I owned many XLMs. Because I did not believe in them, I now have fewer, and I feel really bad. Stellar is one of the best coin on the market, will be top 3 very soon.

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