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Stellar Lumens Briefing

Stellar Lumens (XLM) is now the fifth most bought cryptocurrency in the United States. Our coin guru Obol looks at why XLM is taking center stage.

 

Why should it be on my radar? Locking horns with Ripple to dominate asset transfers among the world’s nearly two billion unbanked adults, Stellar Lumens (XLM) are no doubt a means to the greater good. They just haven’t been a great investment. 

Nevertheless, Stellar’s socially responsible focus not only is crystallizing at a moment in time when the world seems to be spinning off its moorings but the blockchain network is gaining traction, owing to key allies like IBM. 

In the hyper-turbulent pandemic-rocked month of April 2020, XLM rallied 70%; in the same period, Bitcoin stagnated.

Stellar has established a central role tying together ecosystems while helping to create new ones, spring-boarding successful ICOs such as Mobius. 

If some of the more optimistic forecasts even partially hold, “Lumenauts” could be in for a memorable voyage, with XLM said to be poised to at least quadruple to near $USD 0.40 by next year. Moon gazers take note – in the rosiest scenario, it could reach $22 in 2022, according to PrimeXBT. 

Okay, tell me more: Potential low forecast for 2021: two cents. Between floor and ceiling appears to be spacious room for long-term value creation. One of the most conspicuous inefficiencies in the traditional centralized financial system is the persistence of the cigarette-machine-era S.W.I.F.T. network to facilitate cross-border remittance transactions. It’s a system not only archaic but costly because of double-sided fees and pre-funding stipulations that tie up capital. In other words, this is a status quo on bended knee, begging to be disrupted. Just as Tesla (wed to electric batteries) and Nikola (fuel cells) battle it out in zero-emission automotive manufacturing, Ripple and Stellar are clashing for wire-transfer supremacy via fundamentally different approaches: Ripple is for-profit and focused on serving banks, leading a revolution from within the system, bringing outsiders in; Stellar by contrast is a nonprofit seeking to individually empower an estimated 1.7 billion people (one in five adults) who do not have bank accounts, a revolution that ostensibly circumvents banks and Western Union altogether (but which, ultimately, is working within the confines of the establishment). 

Both digital assets should play important roles for the foreseeable future. Instead of one overtaking the other across the board, Exodus’ Dan Won explained, Ripple most likely will continue on its path, trying to appeal to banks while Stellar likewise does its thing, giving unbanked individuals an alternative. 

For added intrigue, there’s common denominator Jed McCaleb, who helped create both projects but whose reputation is still recovering from the time that another one of his creations, Mt. Gox, got spectacularly hacked.

What the bulls may have seen:

  1. A quickly developing ecosystem, real-world applications and a growing, impressive list of champions. In addition to IBM, the list includes Deloitte, Stripe, Tempo, SatoshiPay and Wirex. 
  2. Wide-open yet tightly knit. Literally anybody can use Stellar’s open-source blockchain, which could be a dicey proposition until you delve into the nitty-gritty innards of Stellar’s network, as many curious crypto followers (not to mention hackers) are inclined to do. Holding down the deck is some robust, recently upgraded technology, Horizon, the application programming interface (API) server through which access into the Stellar ecosystem is gained; the proverbial role of Checkpoint Charlie has been delegated to soldiers deployed de-centrally across the Stellar Core, run by individual enablers validating and reaching consensuses, but in doing so paying for the privilege – a mere 0.00001 lumens – imposed purely as an anti-spam speed bump. Stellar can’t be mined in the way Bitcoin is; it doesn’t use Proof-of-Work. Instead, it relies on re-established nodes that confirm transactions via a voting system. Stellar Consensus Protocol (SCP) “opts for safety over liveness,” Hacker Noon’s Michiel Mulders, a developer, said in a deliciously technical post. He noted how, in the event of partition or misbehaving nodes, SCP halts the progress of the network until consensus can be reached.
  3. Versatility. XLM can be used for both micropayments and remittances. The Stellar protocol is tailored to meet the needs of individuals but also provides a blank canvas for moneychangers, governments and banks. Stellar’s blockchain, meanwhile, is birthing ICOs.
  4. Fast, cheap, ubiquitous. XLM can handle 1,000 transactions per second, for a penny apiece, anywhere on earth. 

Risk Factors:

  1. In his development tutorial, Mulders points out a not-insignificant negative aspect – a privacy vulnerability: every transaction can be found and read with a blockchain explorer. Also, the lack of standard e-commerce-friendly easy-click features seems to be slowing down adoption, he said. Stellar is all about asset transfers, though, not payments, as Mulders was quick to note.
  2. “Not a good investment,” WalletInvestor said, citing its artificially intelligent cryptocurrency analysis which is fed by technical data signaling a negative trend. Put another way, you probably can do better trading something else.
  3. The message from Weiss Crypto Ratings: caution. The Moody’s of crypto warns that indicators show XLM could be reaching an exhaustion point.
  4. Relegated: For all of its promise, XLM, once in the Top 10, can’t find a way back in, remarkably prone to sell-offs whenever Bitcoin falls out of favor. It sold off in 2018, the so-called crypto winter, and it sold off again in 2019 when crypto began to crawl back.
  5. Reality-challenged. The crypto market cheered when Stellar intentionally destroyed half of the supply of lumens this past November bringing the total down to 50 billion. Wait, Stellar destroyed half of all lumens? Well, community leaders asserted, that was just an arbitrary number to begin with so, yeah. 

On the one hand, recognizing an unreachable goal, and recalibrating accordingly, was deserving of the sharp price spike that accompanied it, as fleeting as it may have been; because what can’t be overlooked is how profoundly the project misjudged the feasibility of getting XLM into circulation.

Team and record: Prior to co-founding Stellar, Jed McCaleb led technology at Ripple. The 45-year-old developer has had his fingers in the formation of alternative cryptocurrency from its earliest days. As origin stories go, McCaleb remains the guy who created a Bitcoin exchange that (after he sold it) got hacked and eventually collapsed. He’s made up for that association, though. In 2012, he co-founded OpenCoin which became Ripple. He has more money than he’ll ever spend, more Ripple than he’ll ever be able to sell (legally he’s limited to a per diem) so it’s not surprising XLM is so authentically wed to utility, allocating a mere 5% of supply to itself, for operations, with the bulk of the rest slated for dissemination into the public domain. 

The Stellar Foundation, a nonprofit that supports the adoption of the Stellar Lumens network, was created with help from Stripe CEO Patrick Collinson. 

Denelle Dixon, the foundation’s CEO, came highly regarded from Mozilla, the nonprofit behind the open-source web browser Firefox. She rose from counsel to become COO there. The Stellar Foundation’s role in the development of the project should not be confused with running it; the network is decentralized.

Institutional Adoption: The notion that Stellar is going around big institutions isn’t entirely accurate. Banks can self-disrupt, tapping into the Stellar network to go digital. For example, Munich-based Bank von der Heydt is developing a stablecoin to tokenize private placements on the Stellar blockchain. 

Meanwhile, IBM Blockchain, leveraging Stellar protocol, has built a network of networks, World Wire, that for now is effectively functioning as a bridge connecting the private, centralized, guarded banking system with the unbanked masses, a sub-network, essentially, to at least start to open things up to poor people without three forms of identification, long overdue.  “When it’s more efficient to Fed-Ex cash,” IBM Blockchain head Jesse Lund has said, “something is wrong.”

Recent Partnerships: Another use-case project on which Stellar and Big Blue are teaming up is one that connects retailers in the most far-flung areas of the South Pacific. In 2018, Stellar made a pact with the Australian government to soften the ground around an audacious plan to create an “e-government” i.e. one that is able to pay pensioners via blockchain technology. 

Additionally, there’s the socially aware, pragmatic and possibly even lucrative case study that is Saldo. Tapping into the Stellar network, Saldo is an app that allows Mexican migrant workers to pay their loved ones’ recurring utility bills across borders, with peso conversion/transfer done fast, cheap, and compliant. “We see Stellar attracting a lot of like-minded companies like ours, believing in an open-finance infrastructure,” Saldo creator Marco Montes Neri said last year.

Despite its contrary-to-Ripple focus on individuals versus institutions, Stellar isn’t out to blow up the old financial system nor do they seek to rewrite the rules of the road – to the contrary, it actively seeks to work with regulators to bring them up to speed and make the old guard comfortable with blockchain advancements. “We need to get more regulators involved,” Dixon said at a gathering of Stellar community members in Mexico City this past fall.

What May Unlock Value: Getting that regulatory sign-on is part of it. The moving pieces needing to align are many but right now society is crying out for leveling. Short-term, upward moves could be spurred by one-off events e.g. announcements that create buzz. The recent supply burn caused XLM to surge, but that appreciation was momentary – and the 13th largest cryptocurrency still remains unable to return to the top ten by market cap. If 100 billion was considered an arbitrary number what’s preventing 50 billion from being viewed that way? ICOs can be done on the Stellar blockchain – recording artist Akon just did one – but Ethereum is considered better at it. 

Ultimately, the popularity of a noble pursuit will drive interest and keep XLM relevant until, say, Australia goes all in.

Notable endorsements: “Momentum is likely to pick up,” said Cointelegraph’s Rakesh Upadhyay in mid-June. IBM Blockchain chief Lund has confirmed repeatedly that its World Wire pipeline went with Stellar, as opposed to IBM’s own proprietary blockchain, Hyperledger Fabric (more geared toward operating private-permission transactional networks), because, in the enormously wide-open cross-border realm, IBM needed the Stellar protocol to facilitate its long game (as system operator). That it fell to Stellar was for two main reasons: its transparency and scalability. 

“Even Binance, the world’s largest crypto exchange, started providing support for the Stellar crypto, proving the project’s worth and high potential,” said Capital.com’s Valerie Medleva in March.

Bear pressure has been intense this year but XLM has stared it down with “fierce determination,” CoinNewsSpan’s Thomas Gillard said.

Buy Stellar Lumens here

About Obol
Our coin guru is a veteran journalist who has covered virtually all aspects of finance, from trading pits to algorithmic hedge funds. He has written for publications including Barron’s, Reuters and Institutional Investor. The author of several books, he lives in a forest in the Catskill Mountains. His pen name derives from an ancient form of Greek currency.
NOT FINANCIAL ADVICE
Please note that Uphold and its affiliates do not provide investment, tax, or legal advice. This article is for informational purposes only and takes no account of particular personal or market circumstances, and should not be relied upon as investment, tax, or legal advice. For investment, tax, or legal advice and before taking any action you should consult your own advisors.