Stellar is an open-source, decentralized payment protocol designed to connect global financial systems on a single interoperable network. As a Layer 1 blockchain, Stellar enables users to create, send, and trade digital and fiat currencies with remarkable efficiency. It also provides developers with comprehensive documentation, tools, and support to build custom applications and financial solutions on its platform. Since its inception, the Stellar network has processed over 2 billion transactions, showcasing its scalability and real-world utility.
Unlike Bitcoin’s energy-intensive Proof-of-Work (PoW) or Cardano’s Proof-of-Stake (PoS), Stellar uses the Federated Byzantine Agreement (FBA) consensus algorithm. This innovative mechanism allows the network to process transactions faster and at a far lower cost—without requiring massive computational power. FBA leverages a sharding-like approach where nodes form trusted groups, known as quorums, to validate transactions. Each node selects a set of peers it trusts, and a transaction is confirmed only when all members of the quorum agree. This streamlined process results in high throughput and low latency.
Stellar can handle over 1,000 transactions per second (TPS) with final settlement in 3 to 5 seconds. Transaction fees are nearly negligible, fixed at just 0.00001 XLM per operation, making it ideal for microtransactions and cross-border payments.
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The Role of XLM: Stellar’s Native Cryptocurrency
XLM, the native utility token of the Stellar network, serves three core functions:
- Transaction Fees – Every operation on the network requires a minimal XLM fee to prevent spam.
- Account Minimum Balance – Users must hold a small amount of XLM (currently 1 XLM) to activate and maintain an account.
- Bridge Asset – XLM facilitates fast currency conversions across different fiat and digital assets on the network.
Because of its efficiency and low cost, XLM is widely used as a bridge currency in international transactions. It enables seamless value transfer between disparate financial systems—especially valuable in remittances and emerging markets.
Major organizations such as MoneyGram, Circle, ClickPesa, and SatoshiPay have integrated Stellar into their infrastructure. This institutional adoption underscores Stellar’s reliability and real-world applicability in modern finance.
How Does Stellar Work?
At its core, Stellar transforms any asset—fiat, cryptocurrency, or even commodities—into digital tokens that can be transferred instantly across borders. For example, a user in Europe can send euros via a euro-pegged token on Stellar, which is automatically converted into Kenyan shillings upon receipt—all within seconds.
This is made possible through anchored assets. Anchors are trusted entities that hold reserves of real-world assets (like USD or EUR) and issue equivalent digital tokens on the Stellar blockchain. When users deposit fiat with an anchor, they receive a tokenized version that can be sent across the network. The recipient can then redeem it through another anchor or convert it into local currency.
Examples of prominent anchors include:
- MoneyGram International
- Settle Network (active in Mexico, Argentina, Brazil)
- Bitso (Mexico)
- Chronos (Argentina)
- Cowrie (Nigeria)
- Tempo (Europe)
- Stablecorp (Canada)
These partnerships enable seamless integration between traditional banking and blockchain-based finance.
Stellar also features StellarX, its decentralized exchange (DEX), where users can trade various digital assets—including stablecoins like USDC—and even tokenized precious metals like gold and silver.
Consensus Mechanism: The Stellar Consensus Protocol (SCP)
The backbone of Stellar’s performance is the Stellar Consensus Protocol (SCP), invented by David Mazieres, the project’s chief scientist, in 2015. SCP is a practical implementation of the Federated Byzantine Agreement, originally conceptualized by Ripple but significantly refined for greater decentralization and accessibility.
SCP operates through a voting system where nodes collaboratively select trusted validators to confirm transactions and add new blocks. Any participant can run a node and contribute to consensus by defining their own “quorum slices”—trusted subsets of nodes.
This design offers four key advantages:
- Flexible trust – No single point of control; users choose whom to trust.
- Distributed control – Power is decentralized across participants.
- Asymptotic security – The network remains secure even if some nodes fail or act maliciously.
- Low latency – Transactions settle quickly without waiting for block confirmations.
These features make SCP both secure and highly scalable—ideal for global financial applications.
XLM Supply and Economic Model
When Stellar launched in July 2014, 100 billion XLM tokens were created. Prior to launch, 2 billion XLM were sold during a private seed round to co-founders Jed McCaleb and Patrick Collison (CEO of Stripe) for $3 million. The funds were used to establish the Stellar Development Foundation (SDF), a non-profit overseeing the network’s growth.
From launch until October 2019, XLM had an annual inflation mechanism set at 1%, intended to reward network participants. However, after a community vote in 2019, this inflation model was permanently removed, and over 55 billion unclaimed XLM tokens were burned. This decision drastically reduced the maximum supply to approximately 50.5 billion XLM.
Currently, the SDF holds around 60% of the total XLM supply, which it gradually releases to support ecosystem development, partnerships, grants, and educational initiatives. This controlled distribution helps ensure long-term sustainability without flooding the market.
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Founding Team and Governance
Stellar was co-founded in 2014 by Jed McCaleb and Joyce Kim. McCaleb is a well-known figure in the crypto space—he previously founded Mt. Gox, one of the earliest Bitcoin exchanges, and was also a co-founder and CTO of Ripple before leaving due to philosophical differences.
Joyce Kim, a former attorney, brought legal and regulatory insight to the project, emphasizing financial inclusion and decentralization from the start.
Shortly after founding, Stripe invested $3 million in Stellar and helped establish the Stellar Development Foundation (SDF). The SDF remains responsible for maintaining the open-source codebase, supporting developer communities, and engaging with regulators and institutions worldwide.
By mid-2022, Stellar’s user base surpassed 7 million active wallets, reflecting steady organic growth driven by real-world use cases rather than speculation.
Key Project Developments
Partnership with MoneyGram
In May 2022, MoneyGram, a global leader in cross-border payments, announced a strategic partnership with Stellar. Together, they launched a platform leveraging USD Coin (USDC) on the Stellar blockchain to enable instant international transfers.
Users can now send USDC from their Stellar wallets directly to MoneyGram recipients, who can cash out in local currency via MoneyGram’s extensive retail network. This integration significantly reduces transfer time and cost—especially beneficial for underserved populations relying on remittances.
Integration with WhiteBIT
Another milestone came when WhiteBIT, one of Europe’s largest cryptocurrency exchanges, added support for Stellar-based USDC deposits and withdrawals. This move expands access to fast, low-cost stablecoin transactions for European users and reinforces Stellar’s role in mainstream crypto finance.
Frequently Asked Questions (FAQ)
Q: What is XLM used for?
A: XLM is used to pay minimal transaction fees, maintain account balances on the Stellar network, and act as a bridge asset for cross-currency transfers.
Q: Is XLM inflationary?
A: No. The original 1% annual inflation mechanism was eliminated in 2019 after a community vote. No new XLM will ever be created beyond the current cap of ~50.5 billion.
Q: Who controls the Stellar network?
A: No single entity controls Stellar. It is maintained by a decentralized network of nodes and governed in part by the non-profit Stellar Development Foundation (SDF).
Q: How fast are Stellar transactions?
A: Transactions settle in 3–5 seconds with a throughput of over 1,000 TPS—making it one of the fastest blockchains for payments.
Q: Can I stake XLM to earn rewards?
A: While traditional staking isn’t supported due to SCP’s consensus model, users can participate in liquidity pools or earn rewards through ecosystem dApps.
Q: Is Stellar eco-friendly?
A: Yes. Unlike proof-of-work blockchains, Stellar’s consensus mechanism requires minimal energy consumption—making it highly sustainable.
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