Stellar is the name of the open-source, decentralized payments network to which the Lumens (XLM) cryptocurrency is native. It's common to hear Stellar (or even Stellar Lumens) used to refer to both the network and currency, however.
Sharing a founder and much of its original code with Ripple, the Stellar network is similarly optimized for fast and cheap cross-border transactions. However, Stellar's target market is individuals, rather than financial institutions.
Like the XRP Ledger, Stellar's distributed nodes record the network's entire state each time the ledger updates. Every newly updated ledger includes users' account balances, as well as all other network activity. The system allows nodes to sync with the current state of the network without downloading every previous block of transactions — as is the case with Bitcoin.
Stellar nodes come to agreement on a single current Ledger Version using a mechanism called the Stellar Consensus Protocol. The SCP is a form of Byzantine Fault Tolerance called the Federated Byzantine Agreement. While neither solution is as resource-intensive as Bitcoin's proof-of-work, the latter mechanism achieves consensus without the pre-approval of participants by a central authority.
Instead, Stellar validator nodes each create their own list of trusted validators to work with, known as a quorum slice. The system ensures Stellar's high performance, without compromising too much on decentralization.
Along with XLM, Stellar supports the issuance of any non-crypto asset via off-chain gateways. Much like stablecoin implementations, tokenized assets usually represent a claim on that specific asset in the physical world.
The dominant use of Stellar-network tokens is the tokenization of fiat currencies. Users can transact internationally, using a familiar and stable currency, while still taking advantage of Stellar's high-speed and low-cost transactions.
XLM's price changes according to the available supply and current demand for the cryptocurrency. At launch, 100 billion XLM were created. Half of the total supply was earmarked for individuals who signed up via an invitation link. The project's various early partners received another 25% of the pre-mine. A further 20% of the total went to BTC and XRP holders. Finally, the Stellar Development Foundation retained 5% to fund development.
Initially, the network had a slightly inflationary monetary policy. Weekly pay-outs to community-elected users increased the supply by around 1% per year. Later network upgrades reduced the total maximum supply to 50 billion and brought in a mechanism to get rid of XLM transaction fees. Given their impact on the available supply, both changes could have a positive impact on the Stellar price.
Although it potentially supports any tokenized asset, the Stellar network creates demand for XLM by requiring users to hold the cryptocurrency in order to perform any of the network's functions. Not only does this drive demand, leading to a potentially higher XLM price, but it also serves as an anti-spam mechanism.
Ripple co-founder Jed McCaleb and legal expert Joyce Kim founded the Stellar network in 2014. Disagreements between McCaleb and the Ripple Board of Directors had already caused McCaleb to distance himself from his company over the previous year.
The first inkling that McCaleb was working on Stellar came in February 2014, when a mysterious website called SecretBitcoinProject appeared. It gave little away, other than the fact that developers were needed. McCaleb announced his departure from Ripple that May via a post on the XRPTalk forum.
Shortly after the creation of Stellar, Stripe CEO Patrick Collison joined the project to help set up the nonprofit Stellar Development Foundation (SDF). The SDF continues to maintain the network today with early Stellar development being funded by a $3 million loan from Stripe.
David Mazières is a professor of Computer Science at Stanford University, where he leads the Secure Computer Systems Group.