Last month, the Stellar Development Foundation (SDF) attended a cryptocurrency hearing hosted by the US House of Representatives Financial Services Committee.
CEO Denelle Dixon presented the technology of the decentralized payment system Stellar and its applications. Stellar is once again in the spotlight with the recent news that Ukraine and Mexico will be using Stellar to power their digital currencies.
What is Stellar
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 payment and settlement system is complicated with different fiat currencies and each country’s financial and regulatory systems.
Stellar aims to solve this problem by making cross-currency transfers efficient (within 5 seconds) and inexpensive (under 1 cent USD) through decentralized transaction validation.
The current status of Stellar
In its seven years of development, Stellar has had an illustrious history.
It was once one of the top 10 blockchain projects in terms of market capitalization. And even set a record for a 100x surge in token price ahead of the DeFi summer.
Unlike projects in the crypto world, Stellar has built many partnerships with the traditional financial community, including IBM and national financial institutions.
Footprint Analysis – XLM price
However, according to Footprint Analytics, Stellar is currently growing at a slow pace.
After years of growth, it has a TVL of around $1.5 billion to date, ranking 40th among public chains, and that rate is far lower than that of the up-and-coming public chains just starting out walk.
Footprint Analysis – Stellar TVL
There are more than 100 projects and partners growing within the Stellar ecosystem.
Footprint Analytics logs TVL in Stellar
Reasons behind Stellar’s slow growth
Bad ecosystem incentives
At the time of Stellar’s inception, an inflation mechanism was put in place to prevent a reduction in the circulation of XLM.
Each year, the inflation program generates tokens equal to 1% of Stellar’s total supply and accounts for more than 0.05% of Stellar’s total share receiving additional XLM coins.
The purpose of the inflatable mechanism is to provide incentive. However, Coinmetrics analysis shows that 98% of the incremental XLM coins went to the SDF (Stellar Development Foundation) and did not benefit the Stellar project.
One reason for this is that the foundation has been involved since the beginning and can therefore participate in the annual distribution of newly generated tokens.
The second reason is that most Stellar participants joined during the 2017 outbreak and are speculative users with little involvement in the ecosystem.
CoinMetrics of XLM inflation
The omission of SDF
The foundation holds a large number of tokens due to inflationary mechanisms. However, the foundation has failed to use these tokens to make the project work better. Crypto Slate analysts reported in 2019 that the foundation spent just $40,000 on community projects. Having a large amount of money but not using it well shows the inaction of the foundation.
In 2019, the Stellar Development Foundation first mitigated the token mismatch by ending its inflation plan and destroying more than 50% of its tokens. However, XLM still needs to expand its usage scenario.
The way forward for Stellar
Although Stellar has lagged behind since its inception, it is set to make a comeback from 2021.
With the explosion of DeFi projects, cross-currency, cross-chain remittances are a current blockchain pain point, and Stellar offers one of the solutions that will define a new standard for global payments.
Stellar has gained recognition in the market from extended payment companies, national banks, financial institutions and more and recognized by multiple parties and multiple strong partners as a global solution for cross-border payments.
The incompatibility of Stellar contracts with EVM means that February 2021 developers will not be able to quickly deploy projects on Ethereum to Stellar.
FlareNetworks has announced the integration of Stellar Lumens (XLM) into its smart contract platform, enabling compatibility with the Ethereum blockchain. Upon successful landing, Stellar will be even more scalable.
Stellar’s recent moves show that it continues to interface with the financial world, bridging the gap between traditional and on-chain payments.
We can keep an eye on Stellar and look forward to its further development in solving global payment challenges.
This report has been brought to you by Footprint Analytics.
What is footprint
Footprint Analytics is an all-in-one analytics platform for visualizing blockchain data and generating insights. It cleans and integrates on-chain data so users of all skill levels can quickly start researching tokens, projects, and protocols. With over a thousand dashboard templates and a drag-and-drop interface, anyone can create their own custom charts in minutes. Discover blockchain data and invest smarter with Footprint.
Posted in: Stellar, Analysis
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