Stellar Lumens, XLM, is another of the “Fab 5” most recent assets Coinbase is considering adding to its portfolio.

Stellar Lumens began as a fork from Ripple (XRP) by Jed McCaleb. A year after the fork, the differences between Ripple and Stellar Lumens became apparent. Stellar is a platform designed to move money quickly and securely.

Use Case & Mission:

Multiple use cases are found on the website, including: cross-border remittances, mobile money branches, micropayments, and services for the under banked. Stellar.org is a nonprofit organization with the mission of fight poverty by providing access to low-cost financial services.

With minimal initial funding, a $3 million loan from Stripe1, Stellar relies on tax-deductible donations from the public and corporations. Additionally, 5% of the initial tokens are reserved for operational expenses.

The Team:

A small team compared to others in the industry, but robust in talent, education, and international experience; including Jed McCaleb (previously created Mt. Gox, prior to it being sold and Ripple); and David Mazières, a professor at Stanford, who wrote the Stellar Consensus Protocol. Board Members and Advisors provide a wealth of C-Suite experience in payments and software.

Key Partners:

Key partnerships include IBM, Deloitte, and Tempo (a money transfer company based in France). Kik and Stellar development teams maintain a partnership, despite Kik’s recent decision to fork and create its own hybrid.

The Token:

Stellar is the network which requires the Lumens token to be a part of the network.

Token Supply:

100 billion lumens – with a 1% inflation per year
8,144,157,876 lumens distributed to date
Token Distribution:
50% given to individuals – in line with its mission and to expand the network
25% given to partners
20% given to bitcoin (19%) and XRP (1%) holders – This occurred in October 2016 and August 2017
Use Cases:

The token serves two purposes: to deter spam (a DoS attack) and facilitate trade between currency pairs that may not have a liquid market. This is critical for developing markets where currency pairs are not readily traded.  This enables workers to protect their “sweat equity”. 

Currently the transaction fee is 0.00001 lumens (or 100 stroops) and .5 lumens is the minimum balance required in an account. All transaction fees are recycled into the ecosystem.  The low cost to open an account makes it accessible to the majority of the population.

The small fee is intended to deter a DoS attack as it is large enough to prevent spamming, yet small enough not to affect the cost of the transaction. 

Using the Stellar Consensus Protocol (SCP), “anchors” receive a deposit and issue credit, acting as a bridge in a transaction. “Offers” set the rate of exchange for the credits and the stellar ledger acts as the orderbook. The platform can accommodate direct exchanges, indirect exchanges (lumens for fiat), or multiple exchanges (ex: fiat to fiat to crypto to lumens to fiat).

The SCP, written by David Mazières, focuses on safety over liveness, which in a distributed consensus system, one of three properties must be scarified. (safety, liveness, or fault tolerance) Most systems prioritize either safety (all nodes agree on the validity) or liveness (a result is always produced). Additional information on this tradeoff can be found on the Stellar blog.

Who Needs to Buy Lumens:

This is the question.  If I want to transfer money to my daughter in Europe, why not just send her Litecoin?  This is fine for simple peer to peer transfers, but the future of blockchain is smart contracts integrated with money transfers and conversions.

Integrators such as money service businesses, anchors, those creating smart contracts or developing on the network are such use cases.  Money transfers are subject to international laws and regulations.  Both Stellar and Ripple are intended to act as an intermediary, so compliance is assured.

They also search the network to insure the buyer or sellers obtain the best possible prices.  This is a critical component for non-liquid markets, as you are no longer at the mercy of a bank’s conversion rate, you have access to the best market rate. 

The recent approval by The Shariyah Review Bureau (SRB), granted Stellar Sharia Certification, expanding its reach, and enabling Islamic financial institutions the opportunity to offer DLT products and services.

Investment vs Utility:

Lumens from the surface would likely fall under our “utility” category which limits the potential investment value.  There is another case for XLM which provides some evidence that XLM may have some investment value as well.

It is clear from the breakdown above that the main purpose of XLM is to use the Stellar platform.  The other side of the coin is the way it is used.  Some may attempt to adopt it as a ‘fiat type’ currency due to accessibility, adoption, and the markets need for a high-count, low-cost currency.

Case for Investors:

Since XLM is required to use the network, demand of having an account may drive prices.  One item that is a moving target is the amount required.  The base fee is currently set to .00001 XLM. The fee will increase if the system suspects an account is submitting transactions with the malicious intent to bring down the network. https://www.stellar.org/lumens/

With over 7 billion people in the world, and most in developing countries, the demand for XLM may rise.  The majority of the population lives on less than $10USD a day, yet more than half have access to a phone.  Estimates fall somewhere between 4.5 and 5 billion people have a mobile connection.

Medium of Exchange:

Lumens provide a medium of exchange (the key component of currencies in general) from native currencies to more stable currencies.  Where more than half of the world’s population has a mobile phone, many still do not have access to a reputable bank.

Not to go off on a tangent you can read the article on what role crypto currencies play in preserving “sweat equity” here.  Lumens may provide a token that has value due to its flexibility in being a medium of exchange between major currencies.  Similar to how silver coins were used for centuries.

Determining Factors:

There is a total of 164 official national currencies.  This does not include the dozens of currencies in under developed countries and territories.  There is much demand for a bridge currency which in the past has been gold, silver and other hard commodities. Does XLM evolve to a commodity?

Its use as a commodity is already evident.  Companies like IBM, Wal-Mart and Deloitte have acquired large amounts to be used for the Stellar network.  This type of adoption may lead to XLM becoming more like the commodity copper.

Egypt is a world supplier of cement products.  A company in Egypt could use the Stellar network and smart contracts not only to automate purchase orders and payments but also to reduce the costs and speed of international money transfers.   

If Wal-Mart intends on setting its supply chain up on the Stellar blockchain, it will need to create accounts for it partners, no different than an electric company needing to lay lines of copper to run electricity to homes and businesses.

These types of use practices, which enable a company like Wal-Mart to not only receive payments or make them faster, and obtain the best conversion rate, may provide demand to own and store large amounts of XLM.

There is also the potential for the workers in developing countries to use XLM to convert from native currencies to more stable ones.  Why not go straight to Litecoin or Bitcoin? Not all currency pairs trade in Litecoin.  Having an account enabling one to transfer from a non-liquid currency to a more liquid one at a low cost is critical for workers.   


Lumens are utility tokens with the potential of becoming a store of value.  There is more potential for XLM to have value than a coin like Brave.  Of course, value will depend on several factors the most being adaptation.  As Lumens bridges the gap between currencies and is already in compliance with money transfer regulations the potential to evolve from a utility to a fiat type currency is there.

This could fall into our core portfolio, but we would need to remove Elastos, Neo, OMG or other in order to do this.  Does it deserve to replace one?  Maybe.  It definitely deserves to be in our speculative portfolio and we will look to add in the near future.

Will follow up with a technical analysis for those looking to add Lumens to their portfolio.

I want to say thank you to Kara Haas who has provided some of her initial research for this article. You can follow her on twitter @dividebynine.

  1. 1 “In 2014, SDF received a loan of $3,000,000 from Stripe which was subsequently repaid with 2B lumens”  https://www.stellar.org/about/mandate/



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