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What is Stellar (XLM)?

Stellar (XLM) — or Stellar Lumens — is the native cryptocurrency of the Stellar payment protocol. The payment protocol was launched in 2014, along with the Lumens cryptocurrency designed to support digital transactions across the network.

While XLM is the main denomination of the cryptocurrency, there are smaller denominations too. A Stroop is the smallest unit that will register on the Stellar blockchain and is worth 0.000001 XLM. Stroops are used to add precision to payments and transactions and handle network and transaction fees.

XLM is based on a blockchain, but no mining process is involved in transactions and validations. Instead, the Stellar network adopts a different type of consensus logic across its 66 validator nodes, plus the three nodes operated by Stellar itself.

What is Stellar used for?

The Stellar protocol is mainly used to facilitate cross-border payments and transactions. Traditionally, these payments have been slow, unreliable and expensive. In the digital age — and with the increasingly widespread adoption of blockchain technology — the protocol developers wanted to usher in a new way of doing things. With Stellar, it was hoped that these transactions would become faster, cheaper and more reliable, as well as more secure, thanks to the decentralised nature of the blockchain. The project succeeded, and companies like Deloitte and IBM have partnered with Stellar on their own initiatives.

Stellar (XLM) is the native currency for this payment protocol and is used to support payments across the network. However, the cryptocurrency can be used in other ways. Users can buy Stellar (XLM) or receive it via trade, using the token as an alternative to more traditional forms of currency or as a vehicle for speculation and investment. Stellar also offers XLM grants to support the development of future crypto projects, adding another use case for the crypto.

How is the price of Stellar determined?

The XLM price — i.e. the price of the Stellar Lumens currency — is determined according to market forces. It is not tied to any other currency or asset external to the network; therefore, it rises and falls exclusively according to supply and demand.

Unlike other cryptocurrencies — which have a maximum supply level and increase incrementally towards this maximum — the supply of XLM is controlled. Upon launch, 100 billion XLM — or Stellar Lumens — units were made available to traders, and this level was increased by 1% each year to reach a total of 105 billion units in 2019. Since then, however, supply has decreased, and roughly a quarter of the original total is in circulation as of September 2022.

The network's burn protocol also contains supply. Each time a transaction is completed, a very small amount of XLM — less than one unit — is removed from circulation or 'burned'. Despite these controls, demand is still an important factor. If there is a surge in demand, the price of Stellar will increase; if demand falls away, the price will fall with it.

The viability of XLM as an alternative currency depends on crucial demand, but so is its usability in other applications. As the initial aim of the protocol was to support streamlined global transactions, Stellar could provide an enormous benefit to the world's financial and commercial sectors, which could, in turn, drive up the value of XLM. However, as with anything in the crypto market, there are no guarantees this will be the case.

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