Last month, the CEO of the Stellar Development Foundation (SDF) attended a hearing on cryptocurrencies for the US House of Representatives Financial Services Committee. Denelle Dixon presented the technology and applications of the Stellar decentralized payment system. With the recent news that Ukraine and Mexico will be using Stellar to power their digital currencies, Stellar is back in the spotlight.

Launched in 2014, Stellar is a platform that supports cross-border transactions between currency pairs and aims to solve global payment problems through blockchain technology.

The global payments system is complex as each country has different fiat currencies, management and financial systems.

Stellar solves this problem by enabling efficient (within 5 seconds) and inexpensive (under $ 0.01) transfers between different currencies through decentralized transaction validation.

Current status of Stellar

In its 7 year development, Stellar has a glorious history.

It used to be one of the top 10 blockchain projects in terms of market capitalization. And even the price of the XLM token set a 100-fold record increase before the DeFi Summer.

Source: TradingView

Unlike projects in the crypto world, Stellar is building many partnerships with the traditional financial community, including IBM and national financial institutions.

However, Stellar is currently slowing down.

After years of development, the company has a Total Locked Value (TVL) of around $ 1.5 billion to date, ranking it 40th among public chains, and that percentage is much lower than that of new public chains.

TVL belong Star | Source: Footprint Analytics

Stellar’s ecosystem is very underdeveloped, currently only comprises two projects and is very homogeneous.

TVL from Stellar Protocols | Source: Footprint Analytics

The reason the stellar growth is slow

Encourage poor ecosystems

At the time Stellar was founded, an inflation mechanism was in place to prevent a decline in the amount of XLM in circulation.

Each year, the inflation plan generates as many tokens as 1% of XLM’s total supply and accounts for more than 0.05% of Stellar’s total market share receiving additional native tokens.

The inflation mechanism is used for promotion. However, the analysis by Coinmetrics shows that 98% of the incremental XLM has gone to the SDF (Stellar Development Foundation) and does not benefit the Stellar project.

The reason is that the platform has been around since the beginning and can therefore participate in the distribution of newly created tokens every year.

Additionally, most of the Stellar participants entered the middle of the 2017 crash and were speculative users with little involvement in the ecosystem.

XLM inflation is distributed by five 2015 to 2019 | Source: CoinMetrics

The lack of SDF

The foundation holds a large amount of tokens due to the inflation mechanism. However, the organization did not use these tokens to improve the project. Analysts claimed in 2019 that the platform only spent $ 40,000 on community projects. Holding a large amount of money but not using it properly leads to stagnation.

In 2019, the SDF limited token insufficiency by ending its inflation system and destroying more than 50% of its tokens. However, it is still necessary to extend the scenario with XLM.

The way forward for Stellar

Although Stellar has lagged since its inception, it has been showing signs of resurgence since 2021.

With the explosion of DeFi projects, cross-currency and cross-chain remittances are a tough spot for current blockchains, and Stellar offers one of the solutions that are defining the new standard for global payments.

Stellar has been recognized in the market by numerous payment companies, national banks, financial institutions … which has proven that it is a global solution for cross-border payments.

EVM compatibility

Stellar’s contracts are not EVM compatible, which means that developers will not be able to quickly deploy projects on Ethereum to Stellar in February 2021.

FlareNetworks announced the integration of Stellar Lumens (XLM) into their smart contract platform, enabling compatibility with the Ethereum blockchain. If it is successful, Stellar will be even more scalable.

Conclude

Stellar’s recent moves show they continue to connect with the financial community, bridging the gap between traditional and on-chain payments.

Follow Stellar and expect continued growth in solving global payment challenges.

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