What is Stellar (XLM) Cryptocurrency?

Stellar is a public, decentralized blockchain designed to simplify cross-border payments through fast transfers and minimal fees. It addresses inefficiencies in traditional financial systems by facilitating direct exchanges between currencies and digital assets, aiming to support financial inclusion in underserved regions. The network’s native digital currency, Lumens (XLM), underpins liquidity between asset pairs, and supports transaction fee payments.

Origins and Founders

Jed McCaleb, co-founder of Ripple and Mt. Gox, and Joyce Kim, lawyer and entrepreneur, founded Stellar (XLM) in mid-2014. The Stellar Development Foundation (SDF) manages and oversees the ecosystem growth, developer support, strategic partnership, and the overall development of the Stellar Protocol.

Early Milestones and Strategic Partnerships

In 2014, Stripe provided a $3 million seed loan to the Stellar Development Foundation in exchange for 2 billion XLM, later repaid in full.

IBM’s World Wire initiative, announced in 2019, was built on Stellar’s blockchain to enable real-time global payments between financial institutions and anchor entities, supporting dozens of currencies across many countries.

Deloitte has also integrated Stellar into a cross-border payments application called Deloitte Digital Bank in 2016. It is designed to enable instant peer-to-peer and B2B payments in about 5 seconds, significantly reducing cost and latency.

Stellar Network Architecture

Stellar utilizes the Stellar Consensus Protocol (SCP), a federated Byzantine agreement system that eliminates the need for mining or staking. SCP uses a Proof-of-Agreement (PoA) model where validator nodes choose trusted peers to form quorum slices, and transactions are finalized when these overlapping slices converge into a consensus. This method enables rapid, low-cost validation and requires minimal energy because it does not involve mining or staking.

In contrast, Proof-of-Work relies on miners brute forcing to guess the correct hash to validate blockchain transactions The PoW process uses significant computational resources and energy that is why other blockchains use a more energy-saving consensus mechanisms like PoA. In a PoA blockchain like Stellar, validators are elected based on their staked cryptocurrency holdings which have very low energy consumption. However, its centralization is criticized as those with larger stakes have greater influence.

Validator Nodes and Quorum Slices

Validators in Stellar choose trusted peers to form what’s called a quorum set, from which quorum slices are defined. Quorum slices are subsets that meet a threshold required for agreement. Consensus is achieved when these quorum slices overlap across the network, forming a cohesive quorum with shared membership. This makes SCP scalable because nodes only need to trust and coordinate with a subset of peers, rather than the entire network.

Transaction Speed, Throughput, and Finality

Stellar typically finalizes transactions in 2–5 seconds, with an average ledger close around 5 seconds. While it processes only about 10 transactions per second (TPS), each transaction can encompass up to 100 operations, resulting in a potential of up to 1,000 operations per second (OPS).

The XLM Cryptocurrency

Stellar launched with 100 billion XLM and operated a 1 % annual inflation model until October 28, 2019. A validator vote ended inflation, and in November 2019, approximately 55 billion XLM were burned, fixing the maximum supply to roughly 50 billion.

Native Asset vs. Issued Tokens on Stellar

Lumens (XLM) is the network’s native asset. It is the only token that does not require a trustline or an issuing account, and is essential for account activation, transaction fees, and maintaining minimum balances.

In contrast, issued tokens (also known as custom assets) are created by any Stellar account. These assets can be stablecoins, loyalty tokens, or tokenized commodities. Issued tokens require a trustline for each holder, and issuers must set up accounts for issuing and distributing them. Once created, these assets are fully tradable on Stellar’s built-in decentralized exchange (DEX) and benefit from visibility, compliance tools, and liquidity pathways provided by anchors such as fiat issuers.

Transaction Fees (“Stroops”) and Coin Burning

The minimum base fee per operation with Stellar is 100 stroops, which is equivalent to 0.00001 XLM. The collected transaction fees are sent to a locked network fee pool and removed from active circulation. This lockup system works as the burn mechanic of the XLM coin. Additionally, a balance of 1 XLM should be maintained in every account to engage in transactions, which contributes to the amount of Lumens that is not circulated.

Use Cases and Real‑World Adoption

Stellar powers a variety of practical, real-world applications such as cross-border remittances, fiat-backed stablecoins, micro-payments, and emerging NFT use cases. Understanding how the network’s anchor ecosystem and other areas converge to deliver such services will help you gain confidence in the technology and help you decide to buy your own XLM.

Remittances and Low‑Cost Cross‑Border Transfers

Stellar paved the way for off-ramp access worldwide by integrating with a large anchor ecosystem. This anchor ecosystem comprises a global network of banks, fintechs, exchanges, and remittance operators, spanning over 180 countries and supporting more than 20 different digital assets. As a result, Stellar wallets and applications worldwide can connect with local fiat systems through trusted channels.

Stablecoin Issuance and Fiat Anchors (e.g. USDC)

In early 2021, USD Coin (USDC) was launched on Stellar, making it the third major blockchain to support the stablecoin. Anchors serve as on-ramps and off-ramps between fiat currencies and Stellar-issued tokens. These licensed entities issue tokens like USDC in exchange for fiat and guarantee compliance with KYC/AML and interoperability standards. Users and businesses benefit from near-instant settlement, roadmap liquidity, and the ability to trade assets on-chain via Stellar’s decentralized exchange.

Micro‑Payments, Tokenized Assets, and NFTs

Stellar can enable micro-payments due to its very low transaction fee. It allows users to send tips to content creators, make digital purchases, and pay for online services, among other things. The network also excels in tokenized asset issuance to support representation of real‑world items like gold, bonds, ETFs, or money-market funds directly on-chain. And while not its primary focus, Stellar supports non-fungible tokens (NFTs) via custom assets with embedded metadata. NFTs are created using token issuance standards and can be managed using Stellar’s smart contract interface (SAC), including Soroban-based contract tokens.

Stellar vs. Other Payments Networks

Comparing Stellar to traditional and modern payment systems in terms of speed, cost, programmability, and user focus will give clarity on where it stands among global payment options.

Stellar vs. SWIFT & Legacy Rail

SWIFT does not move funds but sends messages instructing banks to settle via reciprocal nostro/vostro accounts. The settlement process involves multiple intermediary banks, resulting in transfer times of 1-5 business days, high cumulative fees, and limited transparency until the payment is completed.

In legacy rails, the banks maintain a correspondent relationship to process payments for each other. It acts as the backbone of international transfers, but is slow, costly, and cumbersome. The funds often traverse multiple banks, each adding fees and delays. Visibility into payment status is limited until final confirmation from participating banks.

Stellar operates as a blockchain-native payment network, eliminating the need for intermediary banks entirely. Transactions settle in seconds, run 24/7, and incur almost negligible fees. 

Stellar vs. Ripple (XRP) in Cross‑Border Liquidity

Ripple (XRP) focuses on institutional cross-border liquidity through RippleNet and its On-Demand Liquidity (ODL) service. Financial institutions use XRP as a bridge currency to settle payments quickly between fiat pairs.

By contrast, Stellar (XLM) is designed for open-access cross-border liquidity. It’s aimed for retail users, small businesses, and those without bank accounts. Stellar enables real-time currency conversion across fiat pairs via its built-in decentralized exchange (DEX) and a global anchor ecosystem that mints and redeems fiat-backed tokens like USDC. Knowing the differences of XRP and XLM can help you decide which of them works better for you.

Strengths and Trade‑Offs

Here’s a quick and clear table summarizing Stellar’s strengths and trade‑offs when doing off-shore transfers and other use cases:

Ecosystem and Developer Tools

Here are core infrastructure and services that empower developers and organizations to build on Stellar:

Horizon API and SDKs (JavaScript, Go, etc.)

Horizon API is the official REST interface for interacting with Stellar. It connects to Stellar Core and supports querying accounts, transactions, ledgers, assets, orderbooks, offers, and more. Horizon also allows streaming over HTTP (Server-Sent Events) for real-time updates. Here, developers can subscribe to events for payments, trades, operations, and ledgers without needing to poll endpoints.

Stellar provides official SDKs in JavaScript, Java, and Go, with community-maintained support for Python, Ruby, C#, and others. These libraries wrap Horizon calls and streamline building, signing, submitting transactions, managing streaming, encoding XDR, and parsing responses.

Anchor Services and Federation Protocol

Anchors are trusted entities, such as banks, remittance firms, or fintech providers, that act as on-ramps and off-ramps between fiat currencies and the Stellar blockchain. Anchors comply with standards such as SEP-6, SEP-24, and SEP-31 to integrate seamlessly with existing financial infrastructure.

The federation protocol (defined by SEP‑2) enables human-readable Stellar addresses. These addresses map directly to cryptographic account IDs, simplifying payments for users. By resolving domain-based identifiers, federation improves usability and reduces friction in on-chain transactions.

Key Projects: LOBSTR, Tempo, SatoshiPay

LOBSTR is a popular non-custodial Stellar wallet offering built-in access to the Stellar Decentralized Exchange (SDEX) across web and mobile platforms. It supports multi-signature account setup, giving users advanced security and optional integration with LOBSTR Vault, a signer app that enables hardware-like multi-device authorization using locally stored keys.

SatoshiPay uses Stellar to facilitate ultra-low-cost digital micropayments, especially popular for content tipping and publishing. Known for enabling seamless, fast microtransactions without subscription models, this platform exemplifies how Stellar’s fee structure supports high-frequency, low-value transactions.

Risks and Challenges

While Stellar delivers fast, cost-effective cross-border payments and asset tokenization, it also faces critical challenges. These areas present real risks to its scalability, adoption, and long-term resilience.

Network Decentralization and Validator Concentration

Stellar’s federated consensus model relies on overlapping quorum slices to achieve network agreement. These quorum slices are groups of trusted validator nodes that influence consensus decisions. This setup is criticized and raises concerns about decentralization, as the SDF can endorse or operate these validators.

Regulatory and Compliance Considerations

Stellar enforces rigorous KYC/AML processes, maintains fiat reserves, and complies with licensing standards to issue fiat-backed tokens. Additionally, regulatory regimes such as FinCEN in the U.S. and global standards, like the FATF’s Travel Rule, require identity verification, transaction monitoring, and coordinated data sharing across borders.

At the same time, stablecoins and tokenized assets issued on Stellar face escalating scrutiny. Regulators in major markets are pushing for strict reserve audits, proof-of-reserves reporting, risk assessments of smart contracts, and legal clarity on asset classification. New legislation, such as the U.S. GENIUS Act and the STABLE Act, would treat stablecoin issuers as financial institutions under the Bank Secrecy Act, requiring them to obtain licenses and provide regulatory transparency. 

Competition from Other Blockchains

Stellar operates in a competitive environment alongside platforms such as Ethereum, Solana, Ripple (XRP), and emerging Layer 2 networks. While Stellar excels at fast, low-cost, and transparent cross-border value transfers leveraging anchors and its Decentralized Exchange, it lacks advanced smart contract complexity.

Layer‑2 solutions, such as Optimism, Arbitrum, and zk‑Rollups, are significantly extending scalability and reducing fees. This development is making Ethereum more competitive and reducing the gap that niche platforms like Stellar once exploited.

Future Roadmap and Outlook

Stellar’s roadmap strongly emphasizes enhancing scalability, usability, and developer efficiency:

• Reduced Block Times: Proposal CAP‑0070 in Protocol 23 allows validators to adjust network configuration, enabling lower ledger latency and potentially ~2.5 s close times.
• Parallel Smart Contract Execution: CAP‑0063 enables parallel transaction scheduling to boost performance and Soroban throughput.
• New Token Standards: Integration of OpenZeppelin-style token frameworks for fungible, non-fungible, multi-token, and security token support to simplify asset issuance.
• Increased Validator Resilience: Expansion of the Tier‑1 validator set from 7 to 13 by the end of 2025 to improve fault tolerance and decentralization.
• Batch Payout Scaling: Implementation of Merkle tree payment batching to enable 100× payout capacity for high-volume flows.
• 5,000 TPS Goal: Through enhanced concurrency, caching, and compilation techniques, Stellar aims to scale throughput significantly.

Stellar also seeks to drive global adoption and on-chain asset liquidity through real-world tokenization and anchor expansion:

• Real-World Asset Target: Stellar aims to scale its tokenized asset ecosystem from ~$290M TVL in early 2024 to $3B by end of 2025, working with institutional issuers like Paxos, SG‑Forge, and Franklin Templeton.
• Global Anchor Expansion: Building out an anchor network across 180+ countries to issue fiat-tokenized assets compliant with SEP‑6 and SEP‑24 standards. This provides liquidity and regulatory integration with local fiat systems.
• Institutional Issuer Support: Streamlined tooling via Stellar Asset Sandbox and enterprise SDKs to simplify token issuance, audits, and on-chain redemption.
• DeFi & RWA Stack Growth: Adoption of DeFi primitives such as lending, borrowing, and yield-bearing assets built using Soroban, targeting everyday finance and institutional use.