Stellar: Stellar Consensus Protocol: A Federated Model for Internet-Level Consensus

Alright, friend! I’m happy to introduce you to a blockchain project called **Stellar (XLM)**. You can think of blockchain as a public, transparent, and tamper-proof “big ledger,” and Stellar is a special “version” of this ledger, focused on making global money movement faster, cheaper, and more convenient.---

What is Stellar

Imagine you have a bank card, your friend has a card from another bank, or even lives in another country. If you want to transfer money to them, it might take several days and the fees could be high. Or, say you only have RMB but want to pay a friend in the US in USD—currency exchange and cross-border transfers can be a real hassle. Stellar, also known as XLM, was created to solve these problems as an **open-source, decentralized blockchain network**.

It’s like a “global payment superhighway,” aiming to make transferring funds and exchanging assets between different countries and currencies as simple, fast, and cheap as sending an email.

Stellar mainly serves , , and .

1. Asset issuance:
   Businesses or financial institutions can issue digital tokens on the Stellar network that represent real-world assets (such as fiat currencies like USD, EUR, or even gold and stocks). These tokens are called “anchored assets” or “anchors.” Think of an “anchor” as a trusted exchange point: it takes your fiat and gives you an equivalent digital token, and vice versa.
2. Fast transactions:
   Users can transfer these digital tokens almost instantly via the Stellar network, with extremely low transaction fees.
3. Convenient exchange:
   Stellar has a built-in decentralized exchange (DEX), allowing users to swap one asset token for another directly on the network—for example, digital USD for digital EUR—without needing traditional banks or forex services. XLM acts as a “bridge currency” in this process, helping to increase liquidity and reduce exchange costs.

Project Vision and Value Proposition

Stellar’s vision is to **create a global financial system where everyone can participate equally**, making financial services accessible to all, especially individuals and businesses underserved by traditional banks.

• Core problems to solve:
  Traditional cross-border payments are slow, costly, and complex. Stellar aims to lower these barriers through technology, promoting global financial connectivity and financial inclusion.
• Differences from similar projects:
  While some blockchain projects also focus on payments, Stellar has been dedicated from the start to **connecting fiat and digital currencies**, emphasizing **interoperability between financial institutions**. Its design is more focused on providing an efficient, low-cost platform for financial service providers (like banks and payment companies) to easily connect and serve users. Compared to Bitcoin’s slow transaction speed, Stellar can process over 1,000 transactions per second.

Technical Features

The Stellar network runs on its unique **Stellar Consensus Protocol (SCP)**, which is a very important technical feature.

• Consensus mechanism:
  SCP is a type of **Federated Byzantine Agreement (FBA)**. Simply put, it doesn’t require “mining” (Proof-of-Work) like Bitcoin to validate transactions, nor does it use Proof-of-Stake like many newer projects. FBA allows each node (think of it as a computer maintaining the ledger) to choose which other nodes it trusts to reach consensus, rather than all nodes trusting a fixed set. This mechanism enables the Stellar network to:
  • High speed:
    Transactions can be validated and confirmed within seconds, typically in 3-5 seconds.
  • Low fees:
    Each transaction costs a tiny amount, almost negligible, effectively preventing spam transactions.
  • Low energy consumption:
    Since it doesn’t require mining, its energy use is far lower than blockchains like Bitcoin that use Proof-of-Work.
  • Decentralization and flexibility:
    Although each node chooses its own trust circle, these circles overlap, ultimately forming a decentralized and robust consensus network.
• Technical architecture:
  Stellar is a **Layer-1 blockchain**, meaning it’s a standalone blockchain that doesn’t rely on others to operate. It supports **asset issuance**, **smart contracts** (though Stellar’s smart contract functionality differs from general-purpose blockchains like Ethereum, focusing more on automating financial operations and interoperability), and **connections to existing financial systems**.

Tokenomics

The native token of the Stellar network is called **Lumens**, with the ticker **XLM**.

• Token basics:
  • Ticker:
    XLM
  • Issuing chain:
    The Stellar network itself.
  • Total supply and issuance mechanism:
    Stellar initially issued 100 billion XLM. However, in November 2019, the Stellar Development Foundation (SDF, the nonprofit responsible for Stellar’s development) burned (permanently destroyed) 55 billion XLM, reducing the total supply to **50 billion**. This was done to reduce inflation risk and increase token value. The Stellar network now has no built-in inflation mechanism, and no new XLM will be created.
  • Current and future circulation:
    As of September 30, 2024, about 29.6 billion XLM are in circulation. The remaining XLM are held by the SDF to support the ecosystem, user acquisition, grants, and future development.
• Token utility:
  • Transaction fees:
    XLM is used to pay the extremely low transaction fees on the Stellar network, helping to prevent spam attacks.
  • Account reserve:
    Every Stellar account must hold a small amount of XLM as a minimum reserve, which helps ensure system security and stability.
  • Bridge currency:
    On Stellar’s decentralized exchange, when there’s no direct trading pair between two assets, XLM can serve as an intermediary currency—a “bridge”—to facilitate fast, cheap exchanges between different currencies or assets.
• Token distribution and unlocking:
  XLM distribution is managed by the Stellar Development Foundation to promote the growth and adoption of the Stellar ecosystem. The SDF distributes XLM through grants, partnerships, and other means.

Team, Governance, and Funding

• Core members:
  Stellar was co-founded in 2014 by **Jed McCaleb** and **Joyce Kim**. Jed McCaleb is a well-known figure in crypto, having founded the Mt. Gox exchange and co-founded Ripple. The SCP whitepaper was written by David Mazières.
• Team characteristics:
  The development and growth of the Stellar network is supported by the **Stellar Development Foundation (SDF)**. SDF is a nonprofit founded in 2014, dedicated to maintaining the Stellar protocol codebase, supporting developers, fintech and business communities building on the network, and serving as an independent industry voice with regulators and institutions.
• Governance mechanism:
  Stellar is an **open-source** project, meaning its code is public and anyone can view, contribute to, or audit it. The SDF plays a central role in project development, but the Stellar network itself is decentralized.
• Treasury and funding runway:
  The SDF holds most of the non-circulating XLM and uses these funds to support the ecosystem, fund projects, drive user growth, and future development. The Stellar project initially received $3 million in seed funding from Stripe.

Roadmap

As a continuously evolving project, Stellar has a rich development history and future plans. Here are some key milestones and directions:

• 2014:
  Project officially launched, Stellar Development Foundation established.
• 2015:
  Stellar Consensus Protocol (SCP) whitepaper released, introducing the unique FBA consensus mechanism, replacing the original Ripple-based protocol.
• 2019:
  Stellar Development Foundation burned 55 billion XLM, reducing total supply to 50 billion and removing the inflation mechanism.
• Recent developments:
  Stellar continues to build and promote **asset tokenization**, **smart contract platforms** (such as the introduction of the Soroban smart contract platform, aimed at providing richer DeFi functionality), **DeFi**, and **cross-border payment solutions**.
• Future plans:
  Continue to improve network performance, expand the ecosystem, attract more developers and businesses to build on Stellar, and explore integration with central bank digital currencies (CBDCs).

Common Risk Reminders

While Stellar has many advantages, every blockchain project carries risks, so please be aware of the following:

• Technical and security risks:
  • Protocol vulnerabilities:
    Although SCP is designed to be secure, any complex software may have unknown bugs.
  • Network attacks:
    Decentralized networks can face various attacks, such as DDoS, which may affect network availability.
  • Anchor risk:
    Fiat or other asset tokens on Stellar rely on the trustworthiness of “anchors” (issuers). If an anchor has issues (like insufficient reserves), the value of its issued tokens may be compromised.
• Economic risks:
  • XLM price volatility:
    As a cryptocurrency, XLM’s price is affected by market supply and demand, macroeconomic conditions, regulatory policies, and other factors, and may fluctuate sharply.
  • Competition risk:
    Stellar faces fierce competition from other payment networks, stablecoin projects, and traditional financial institutions.
  • Liquidity risk:
    Although Stellar aims to improve liquidity, some niche assets or trading pairs may still lack sufficient liquidity.
• Compliance and operational risks:
  • Regulatory uncertainty:
    Global regulations on cryptocurrencies and blockchain are still evolving, and future policy changes may impact Stellar and its ecosystem.
  • Centralization risk of SDF:
    Although the network is decentralized, the Stellar Development Foundation (SDF), as the main maintainer and XLM holder, may have significant influence through its decisions and operations.

Verification Checklist

If you want to dig deeper into the Stellar project, here are some resources you can check out:

• Block explorer:
  Stellar has a public block explorer where you can view all transactions and account information, but the official documentation does not provide specific contract addresses since asset issuance is a built-in feature, not in the form of smart contracts.
• GitHub activity:
  Stellar’s core codebase and documentation are active on GitHub. You can search for “stellar/stellar-core” and “stellar/stellar-docs” on GitHub to see code commits, update frequency, and community contributions.
• Official documentation:
  Stellar’s official website (stellar.org) provides detailed developer docs and learning materials.
• Stellar Consensus Protocol whitepaper:
  You can find it by searching “Stellar Consensus Protocol whitepaper” to learn about the technical details of SCP.

Project Summary

Stellar is a blockchain project aiming to revolutionize global payments and asset flows. Through its unique Stellar Consensus Protocol, it provides a fast, cheap, and efficient platform that makes cross-border transactions and exchanges between different fiat and digital assets easily accessible. The Stellar Development Foundation, as a nonprofit, is committed to the project’s long-term development and the realization of financial inclusion. While Stellar is attractive in both technology and vision, like all emerging technologies, it faces technical, economic, and regulatory risks. Before participating in or investing in any crypto project, **be sure to conduct thorough research and risk assessment—this is not investment advice**.

Hope this introduction gives you a clear and basic understanding of Stellar! For more details, please do your own research.