Stellar Lumens, commonly referred to as XLM, is the native cryptocurrency of the Stellar network, a decentralized, open-source blockchain platform designed to facilitate fast, low-cost, cross-border financial transactions.
Launched in 2014, Stellar aims to connect financial institutions, payment systems, and individuals, promoting financial inclusion, particularly for the unbanked and underbanked populations.
This article explores the origins, technology, use cases, tokenomics, and future potential of Stellar Lumens (XLM).
Origins and Background
Stellar was co-founded by Jed McCaleb, a prominent figure in the cryptocurrency space known for creating Mt. Gox (the first major Bitcoin exchange) and co-founding Ripple, and Joyce Kim, a former lawyer.
The Stellar network was launched in July 2014 with initial funding of $3 million from Stripe, a payments company, in exchange for 2 billion XLM tokens. Originally a fork of Ripple’s XRP Ledger, Stellar diverged to develop its own codebase, focusing on individual users and financial inclusion rather than solely institutional partnerships.
The Stellar Development Foundation (SDF), a nonprofit organization, oversees the network’s development and promotes its mission to create an open, affordable financial system.
The Stellar Network: How It Works
Stellar is a decentralized, peer-to-peer blockchain network that enables the transfer of digital representations of any currency, including fiat and cryptocurrencies. Unlike traditional blockchains like Bitcoin, which rely on Proof-of-Work (PoW), or Ethereum, which uses Proof-of-Stake (PoS), Stellar employs the Stellar Consensus Protocol (SCP), a unique consensus mechanism based on the Federated Byzantine Agreement (FBA). SCP allows validators, chosen by XLM holders, to confirm transactions quickly and efficiently without mining, resulting in low energy consumption and transaction fees as low as 0.00001 XLM.
Key Features of the Stellar Network
- Cross-Border Payments: Stellar facilitates seamless currency exchanges between fiat and digital assets through "anchors," trusted entities that issue digital credits on the network. For example, a user can send USD and have the recipient receive EUR, with the network automatically performing the conversion via XLM on its decentralized exchange (DEX). Transactions typically settle in 3–5 seconds.
- Decentralized Exchange (DEX): Stellar’s built-in order book allows users to trade assets directly on the network. This feature supports multi-currency conversions, enabling complex transaction paths (e.g., USD to EUR to GBP) if direct trading pairs are unavailable.
- Asset Issuance: Stellar allows users to create and manage digital assets, such as tokenized stocks, currencies, or other cryptocurrencies, making it a versatile platform for financial innovation.
- Financial Inclusion: Stellar’s low-cost structure and ability to operate without traditional banking infrastructure make it ideal for providing financial services to unbanked populations in developing regions.
- Smart Contracts via Soroban: In recent years, Stellar introduced Soroban, a smart contract platform that enhances its functionality, enabling developers to build decentralized applications (dApps) for use cases like tokenized assets and decentralized finance (DeFi).
The Role of XLM (Lumens)
XLM, or Lumens, serves multiple purposes within the Stellar ecosystem:
- Transaction Fees: Each transaction on the Stellar network requires a minimal fee of 0.00001 XLM (100 stroops), which prevents spam attacks and ensures network security. These fees are burned, reducing the total supply over time.
- Account Initialization: Every Stellar account must hold a minimum balance of 1 XLM to remain active, further deterring malicious activity.
- Bridge Currency: XLM acts as an intermediary for currency conversions, facilitating exchanges between different fiat and digital assets on the network’s DEX.
- Incentives and Governance: XLM holders can stake their tokens to vote for validators, influencing the network’s consensus process.
Tokenomics
At launch, Stellar created 100 billion XLM tokens with a 1% annual inflation rate. In 2019, the SDF burned approximately 55 billion XLM, reducing the total supply to 50 billion, with around 31 billion XLM currently in circulation and the remainder held by the SDF for ecosystem development. The decision to burn tokens and end inflation aimed to increase scarcity and reduce reliance on airdrops for community growth. The SDF uses its XLM holdings to fund grants, partnerships, and development initiatives, with a focus on transparency through its Lumen Accounting guide.
Centralization Concerns
While Stellar is decentralized, the SDF’s control of roughly 60% of the XLM supply raises concerns about centralization. Additionally, the network relies on a relatively small number of validators (over 50), which could pose risks if nodes collaborate maliciously. Despite these concerns, the SDF’s nonprofit status and commitment to financial inclusion mitigate some criticism.
Use Cases
Stellar’s design makes it suitable for a variety of applications:
- Remittances and Cross-Border Payments: Stellar’s low fees and fast transaction times make it ideal for international money transfers, competing with traditional services like MoneyGram and Western Union. For example, a user can send USD to a merchant in Europe, who receives EUR, with the exchange happening seamlessly on the network.
- Microtransactions: The low-cost structure supports microtransactions, enabling content creators to monetize digital assets like articles, music, or videos on a per-use basis.
- Financial Inclusion: Stellar empowers individuals without access to traditional banking to store, send, and receive value, fostering economic participation in developing regions.
- Asset Tokenization: Companies have explored tokenizing assets (e.g., stocks) on Stellar due to its cost efficiency and scalability.
- Central Bank Digital Currencies (CBDCs): Stellar has been linked to discussions with organizations for issuing CBDCs, though such claims remain speculative and unconfirmed.
Comparison with Ripple (XRP)
Stellar and Ripple share a common origin, as both were co-founded by Jed McCaleb, but they differ in philosophy and focus. Ripple targets institutional partnerships for international remittances, while Stellar prioritizes individual users and financial inclusion. Stellar’s SCP is more energy-efficient than Ripple’s consensus mechanism, and its nonprofit structure contrasts with Ripple’s for-profit model. Despite these differences, XRP and XLM prices often correlate due to shared market perceptions.
Historical Performance and Market Position
XLM has experienced significant price volatility since its launch. In 2014, it saw a 5x increase, followed by a decline until 2017, when it surged from $0.00547 to $0.047 in four days, possibly due to airdrops and growing awareness. It reached an all-time high of $0.91 in January 2018 but has since faced market fluctuations. As of July 16, 2025, XLM is priced at approximately $0.45, with a market cap of $13.99 billion, ranking it among the top 20 cryptocurrencies. Recent data shows a 77.6% price increase over the past week, reflecting strong market interest.
Future Outlook
Stellar’s focus on financial inclusion, low-cost transactions, and interoperability positions it as a strong player in the cryptocurrency space. Analysts predict potential price growth, with some forecasting XLM reaching $1.31 by the end of 2025, though the crypto market’s volatility warrants caution. The introduction of Soroban smart contracts and partnerships enhance Stellar’s long-term potential. However, competition from other blockchain platforms and centralization concerns could pose challenges.
How to Buy and Store XLM
XLM can be purchased on major exchanges with trading pairs including XLM/USDT, XLM/USD, and XLM/BTC. For storage, users can choose:
- Exchange Wallets: Platforms offer secure storage with robust security measures.
- Software Wallets: StellarTerm and Stellar’s Desktop Client provide access to the network’s DEX.
- Hardware Wallets: Devices like Ledger support XLM for enhanced security. Always transfer XLM to a private wallet for long-term storage to minimize risks.