Cryptoassets Explained: Stellar

by: Hans Hauge

Stellar is a payment system that uses tokens called Lumens, formerly known as simply Stellars.

Stellar was founded by Jed McCaleb, a well-known player in the cryptocurrency ecosystem.

Stellar is one of the few cryptoassets to outperform Bitcoin over the last year.

Stellar was originally forked from Ripple in 2014.


Stellar (XLM-USD), which was formerly known as Stellar Lumens, is the brain child of Jed McCaleb. You may recognize Jed from such enterprises as Mt. Gox and the Ripple (XRP-USD) project.

Stellar is focused on delivering fast payments with low fees, and automatically converting from any supported currency into another. Stellar's token is called a "Lumen," hence the ticker symbol, XLM.

stellar logo Source:

Stellar does not use proof of work, like Bitcoin (BTC-USD)(OTCQX:GBTC)(COIN) and other PoW coins. Rather, it relies on the SCP, or Stellar Consensus Protocol, instead.

Stellar was forked from Ripple in 2014, and has been independently developed as its own project since then.

Purpose and Classification

Stellar is most commonly compared to Ripple, but this might not be the best comparison. Stellar seems to be more focused on retail payments and the exchange of value between individuals at a distance, where Ripple is more focused on international settlement between banks and other financial institutions.

Taxonomy: Utility Token / Cryptocurrency

Age, History, Current Status

As I mentioned previously, Stellar was forked from Ripple in 2014. Since then they have been very active in building partnerships and getting their name out (even if they only have 500 followers on Seeking Alpha today).


Stellar is looking to partner with companies that want to use their technology in the wild. Let's explore some of these partnerships.


TORONTO - 16 Oct 2017: SIBOS: IBM (NYSE: IBM) today announced a new blockchain banking solution that will help financial institutions address the processes of universal cross-border payments, designed to reduce the settlement time and lower the cost of completing global payments for businesses and consumers. Using IBM Blockchain, and in collaboration with technology partners and KlickEx Group, the solution is intended to improve the speed in which banks both clear and settle payment transactions on a single network in near real time.


It's worth noting that IBM just announced an AU$1B deal with the Australian government to make: easier, more efficient and cost effective to access emerging technologies such as AI, blockchain, quantum enables the agencies to accelerate the deployment of digital services that are smarter, more resilient and better integrated for Australians.


Stellar was not explicitly mentioned in this announcement, but rumors that they will be involved have been circulating. We'll have to wait and see how this shakes out.


Deloitte, one of the largest purveyors of professional services in the world, has integrated with the Stellar network to build a revolutionary cross-border payments application.

Launched at the Consensus conference in New York in May 2016, the Deloitte Digital Bank is now available to power instant payments across borders.



We're very bullish on the cryptocurrency space in general and expect that multiple systems will prosper. When the opportunity arose to help Stellar, we enthusiastically agreed. A couple of months ago, Stripe contributed $3M to help get the project going. In return, we received 2% of the stellars. However, the project is not run by Stripe. We just believe that a system with properties like Stellar's should exist in the world, and we heartily encourage anyone interested to participate in its development. We're going to auction a majority of our stellars to other interested companies, with any net profits being returned to the Stellar Foundation — please get in touch if your company might be interested.


Note: The Stripe announcement was from 2014, when Lumens were still called "Stellars."

Software Development

Stellar is open source and their code lives on GitHub, alongside many other cryptocurrency projects. Let's look first at the Stellar Core repository.

stellar core github Source: GitHub

This project actually looks a little lonely, but we have to keep in mind that there are many code repositories for Stellar as an organization, so the developers are working on multiple code bases at once.

stellar github projects Source: GitHub

When you combine all their repositories, it's clear that the team is staying busy. However, for a project that's fifth in market cap, I don't think it would hurt to have a larger team.

Market Capitalization

Stellar is the fifth-largest cryptocurrency today as measured by

stellar market cap Source:

With a market cap north of $4.6 billion, it currently sits between Bitcoin Cash (BCH-USD) and EOS (EOS-USD). Notably, the trading volume in the last 24 hours is much lower for XLM than its neighbors, but the price has gained during this time, going up 1.46% in the last day of trading.


Stellar Close Price data by YCharts

Interestingly, Stellar is one of the few cryptos to outperform Bitcoin in the last year, being up over 5.5x while Bitcoin is down by 27%.

Exchange Liquidity

Stellar is traded on many exchanges, including Binance (BNB-USD), Upbit and GDAC. The most popular trading pairs are Bitcoin, Tether (USDT-USD), and the KRW.

Stellar exchange liquidity Source:

In the last 24 hours, $96.9M worth of XLM have changed hands on these exchanges.

Token Issuance Model

Stellar is not mined, and all tokens have been present since the start. Therefore, this model is deflationary, given that tokens will inevitably be lost over time and no more are slated to be produced.

However, of the 104,463,177,385 Lumens that exist, only 19,264,393,015 are circulating today, meaning that in the short term there will be "inflation" as existing tokens enter the circulating supply from the reserve.


Stellar focuses on their federated Byzantine agreement, or FBA, along with the Stellar Consensus Protocol, SCP to achieve a secure system. See below:

This paper introduces a new model for consensus called federated Byzantine agreement (FBA). FBA achieves robustness through quorum slices — individual trust decisions made by each node that together determine system-level quorums. Slices bind the system together much the way individual networks’ peering and transit decisions now unify the Internet. We also present the Stellar Consensus Protocol (SCP), a construction for FBA. Like all Byzantine agreement protocols, SCP makes no assumptions about the rational behavior of attackers. Unlike prior Byzantine agreement models, which presuppose a unanimously accepted membership list, SCP enjoys open membership that promotes organic network growth. Compared to decentralized proof of-work and proof-of-stake schemes, SCP has modest computing and financial requirements, lowering the barrier to entry and potentially opening up financial systems to new participants.


To this end, they have also introduced Flexible trust and Asymptotic security.

Flexible trust. Users have the freedom to trust any combination of parties they see fit. For example, a small non profit may play a key role in keeping much larger institutions honest. Asymptotic security. Safety rests on digital signatures and hash families whose parameters can realistically be tuned to protect against adversaries with unimaginably vast computing power.Source:

I'm a bit skeptical about this idea of "flexible trust," seeing as how this shifts the burden of trust back to the user. With a system like Bitcoin, you just trust the network at large, there's no need to pick and choose who you trust.

However, I also understand that so-called "trustless" systems do not really exist today. Even the most trustless systems that we have still bears the risk that bad actors will assault it. In fact, that's almost guaranteed to happen with the incentive structures being what they are. So, I guess we'll have to reserve judgment on this point for now.

Bug Bounty Program

One thing that's a good idea is to have a bug bounty program. In this way, the community is incentivized to find and report critical issues before they get exploited. Stellar has such a program, so, good for them.

The Stellar Bug Bounty Program provides bounties for vulnerabilities and exploits discovered in the Stellar protocol or any of the code in our repos. We recognize the importance of our community and security researchers in helping identify bugs and issues. We encourage responsible disclosure of security vulnerabilities via our bug bounty program described on this page. -

White Paper

In Stellar's white paper, they set themselves up as a better alternative to Bitcoin. They claim that their low latency and decentralized control give them an edge.

Decentralized control. Anyone is able to participate and no central authority dictates whose approval is required for consensus. Low latency. In practice, nodes can reach consensus at timescales humans expect for web or payment transactions—i.e., a few seconds at most.


scp advantages Source:

The white paper is quite lengthy, coming in at 32 pages and it's packed with some fairly-dense jargon. So, I'm not going to really go too deep here. But if you're a serious investor who wants to dig into the fine print, you should read the whole thing.

Before we move on though, let's look at the summary paragraph.

8. SUMMARY Byzantine agreement has long enabled distributed systems to achieve consensus with efficiency, standard cryptographic security, and flexibility in designating trusted participants. More recently, Bitcoin introduced the revolutionary notion of decentralized consensus, leading to many new systems and research challenges. This paper introduces federated Byzantine agreement (FBA), a model for achieving decentralized consensus while preserving the traditional benefits of Byzantine agreement. The key distinction between FBA and prior Byzantine agreement systems is that FBA forms quorums from participants’ individual trust decisions, allowing an organic growth model similar to that of the Internet. The Stellar Consensus Protocol (SCP) is a construction for FBA that achieves optimal safety against ill-behaved participants.Source:

I like the idea of organic network growth, but I'm not sure if the comparison holds up here. I mean, today I connect to the internet through my ISP, but I really only have two or maybe three choices in that regard. After that, I'm not manually tracing the route that my packets travel to get where they're going.

So, the idea that an individual is going to be better at manually building a trusted data network is a bit off. The routing of the Internet is done automatically, and this is a good thing. The moment we have to start relying on individuals to determine this on their own is the point at which we run into trouble. But I digress.


Turning our attention to the community, we can see that has done a great job of drumming up interest. On Twitter (TWTR) they have amassed a quarter of a million followers.

stellar twitter Source: Twitter

Over on Reddit, Stellar has 97.8k subscribers, which is robust. EOS, for comparison has only 60.6k.


Many have worried about the ongoing beefs between Stellar and Ripple. Some of these involve their shared founder Jed, while others are related to changes in the protocol related to security concerns.

Others have pointed out that dilution and transparency are their primary concerns.

The Transparency Trap

When Stellar was created and the code forked from Ripple, the new entity created a non-profit foundation (the Stellar Development Foundation in part justified its status by claiming to provide education about cryptocurrency). It promised to bring transparency and integrity to the cryptocurrency space. Three years later, this promise has been left unfulfilled. Below we have obtained an archived version of the site as of April 2017. In this web page, the Stellar team promised token holders to make available “permanently and publicly” the “sum of salaries plus lumen grants of all employees” and Stellar’s “quarterly budget.”

Upon our inquiry, a Stellar team member informed us in mid-2017 that they were a “bit behind” schedule on these transparency reports. This promise has since been scrubbed from the site: Source: Lighthouse Crypto

It should be noted that Lighthouse Crypto claimed to have a short position on XLM at the time that their article was published in October, 2017. Since then the XLM tokens have gone up 10x in value, ouch!


Stellar Close Price data by YCharts


I'm not sure that I'm ready to call Stellar the next Bitcoin. But, I also wouldn't bet against them. While truly open and permissionless systems like Bitcoin and others have no PR people shaking hands and kissing babies, Stellar has gone right for the jugular by securing deals with Stripe and IBM.

I don't see Stellar as a direct competitor with Ripple. Actually, I think they both can thrive and as the world becomes increasingly digital there may be an argument to be made for both of these projects.

I do not hold Stellar today, but I'm considering taking a small position at some point in the near future.



Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.