Stellar Lumens (XLM) Explained

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Stellar Lumens Explained

Last Updated: 1st November 2018

Stellar is a distributed hybrid blockchain platform that aims to help facilitate cross-asset transfer of value at a fraction of a penny. Stellar is aiming to be an open financial system that gives people of all income levels access to low-cost financial services. These services include, but are not limited to:

  • Remittances
  • Micropayments
  • Mobile Branches
  • Mobile Money

In addition to these services, one very powerful feature of the network is their Distributed Exchange.

Distributed Exchange

Through use of its intermediary currency Lumens (XLM), a user can send any currency that they own to anyone else in a different currency.

For example, if Alice wanted to send EUR to Bob using her USD, an offer is submitted to the distributed exchange selling USD for EUR. This submitted offer forms what is known as an order book. The network will use the order book to find the best exchange rate for the transaction in-order to minimize the fee paid by a user.

This multi-currency transaction is possible because of what are known as Anchors. Anchors are trusted entities that hold people’s deposits and can issue credit. In essence, Anchors act as a bridge between different currencies and the Stellar network.

Lumens (XLM)

Lumens are the native asset (digital currency) that exist on the Stellar network. They currently serve two distinct purposes:

  • Facilitate multi-currency transactions
  • Anti-spam role

Multi-currency transactions: Lumens is the digital currency that acts a bridge in-order to facilitate multi-currency transactions. Transactions such as: sending money in EUR, and then receiving it in USD. XLM is the digital intermediary that allows for such a transaction to occur at a low cost.

Anti-spam: In-order to prevent DoS attacks that would inevitably occur on the Stellar network, a small fee of 0.00001 XLM is associated with every transaction that occurs on the network. This fee is small enough so it does not significantly affect the cost of transaction, but large enough so it dissuades bad actors from spamming the network. The collected fee is then redistributed and added to an inflation pool. This inflation pool releases Lumens at a rate of 1% each year.

Incentive Program

In-order further facilitate the growth of the Stellar eco-system, Stellar currently offers the following incentive programs:

  • Stellar Build Challenge
  • Partnership Grant Challenge

Stellar Build Challenge: This is an ongoing program that is intended to encourage and reward innovation on the Stellar network. With rewards of up to 2,000,000 XLM, developers are encouraged to innovate in areas such as: Wallets, remittance applications and token issuance. By providing a monetary incentive, the eco-system is able to quickly develop into a reputable and established distributed system.

Partnership Grant Challenge: This program is intended to encourage leading organizations to build on the network and therefore promote a more inclusive financial system. Grants of up to $2,000,000 worth of Lumens may be awarded to an exceptional organization.

With partners such as: IBM, Deloitte and Stripe, there is clear demand for the services currently offered by Stellar and its network.

The Future of Stellar

With its growing list of partnerships, as well as its quickly developing eco-system, there is no doubt that Stellar has the potential to be a very reputable player in the space. The services it offers are straightforward and offer practical real-world applications. This, in combination with and the sense of professionalism that currently surrounds Stellar, leaves it as the cryptocurrency to watch in 2018.