What Is Stellar (XLM)? Understanding the Relationship Between Stellar and Ripple

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Stellar (XLM) is a decentralized blockchain platform designed to enable fast, low-cost cross-border payments and financial inclusion for individuals and institutions worldwide. Built as a fork of the Ripple protocol but enhanced with its own consensus mechanism—the Stellar Consensus Protocol (SCP)—XLM distinguishes itself through greater transparency, decentralization, and a strong focus on empowering underserved communities.

While both Stellar and Ripple aim to revolutionize global payments, their target audiences and operational philosophies differ significantly. This article explores the core features of Stellar, its relationship with Ripple, tokenomics, inflation and burn mechanisms, key partnerships, and the historical context behind its creation.

The Core Technology: Stellar Consensus Protocol (SCP)

Unlike traditional proof-of-work or even some proof-of-stake systems, Stellar uses the Stellar Consensus Protocol (SCP), a unique federated Byzantine agreement model that enables rapid transaction finality—typically within 3–5 seconds—while maintaining high security and energy efficiency.

This consensus design allows Stellar to scale efficiently without sacrificing decentralization. It supports not only cryptocurrency transfers but also the seamless conversion between fiat currencies, digital assets, and stablecoins through built-in decentralized exchange functionality.

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XLM: The Native Asset of the Stellar Network

The native cryptocurrency of the Stellar network is called Lumens (XLM). Its primary roles include:

Every account must hold at least 0.5 XLM, which helps reduce the creation of inactive or spam accounts. Transaction fees are extremely low—just 0.00001 XLM per operation, making Stellar one of the most cost-effective blockchains for microtransactions.

These fees are not redistributed to validators; instead, they are burned, contributing to long-term scarcity. Meanwhile, new XLM is issued weekly via an inflation mechanism, distributing newly minted tokens to accounts that receive over 0.5% of total votes from the network.

Key Use Case: Bridging Currencies Across Borders

One of Stellar’s most powerful utilities lies in its ability to act as a bridge currency between otherwise illiquid or incompatible financial systems.

For example, if someone wants to send Philippine Pesos (PHP) to someone receiving Kenyan Shillings (KES), there may be no direct market or efficient conversion path. Instead, the system can convert PHP → XLM → KES instantly, using XLM as a liquid intermediary. This dramatically improves liquidity and reduces reliance on centralized intermediaries like banks or remittance services.

This feature makes Stellar particularly valuable in emerging markets where access to traditional banking infrastructure is limited.

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Token Distribution and Supply Model

Stellar launched with an initial supply of 100 billion XLM, later increased to 105 billion, with a planned annual inflation rate of 1%. However, a major shift occurred in 2019 that redefined its economic model.

The Great XLM Burn of 2019

In November 2019, the Stellar Development Foundation (SDF) made headlines by burning 55 billion XLM—over half of the total supply at the time. This unprecedented move reduced the circulating supply to approximately 50 billion XLM, reinforcing a deflationary narrative despite the ongoing inflation mechanism.

The burned tokens came from:

Post-burn, SDF retained:

This strategic burn signaled a commitment to long-term sustainability and alignment with community interests rather than hoarding.

How XLM Was Initially Distributed

Unlike many projects that raised funds through ICOs, Stellar adopted a fully non-dilutive distribution model via airdrops and strategic grants:

This approach emphasized accessibility and fairness, allowing everyday users—not just accredited investors—to participate in the network's early growth.

The Ripple Connection: Shared Origins, Divergent Paths

Stellar shares deep roots with Ripple. Both were co-founded by Jed McCaleb, a prominent figure in the crypto space who also played a role in creating eDonkey and Mt. Gox.

However, due to disagreements with Ripple’s board—particularly over centralization concerns and strategic direction—McCaleb left Ripple in 2013 and went on to found Stellar. His vision was clear: build a more open, inclusive, and decentralized alternative focused on individual empowerment rather than institutional clients.

While Ripple targets banks and financial institutions, Stellar aims to serve individuals, especially those in underbanked regions. This fundamental difference shapes everything from partnership choices to technical design.

David Schwartz, Ripple’s CTO, has publicly criticized McCaleb’s move, calling it a betrayal of investor trust. He argued that while internal disagreements are normal, launching a direct competitor undermines corporate loyalty.

Nonetheless, the existence of both networks highlights two complementary approaches to solving global payment inefficiencies—one top-down (Ripple), one bottom-up (Stellar).

Strategic Partnerships Driving Real-World Adoption

Stellar has forged alliances with major players committed to financial inclusion:

These collaborations demonstrate Stellar’s practical utility beyond speculation—its infrastructure powers real financial services used by millions.

Frequently Asked Questions (FAQ)

What is the difference between Stellar and Ripple?

While both use similar underlying technology, Ripple (XRP) focuses on serving banks with enterprise-grade solutions, whereas Stellar (XLM) prioritizes financial inclusion for individuals and operates as a nonprofit-driven project.

Can XLM be mined?

No. XLM cannot be mined. All tokens are pre-minted, and new supply is introduced via weekly inflation payouts voted on by the community.

Why did Stellar burn so many tokens?

The 2019 burn removed over 55 billion unused XLM from circulation to improve scarcity, align incentives, and signal long-term commitment to network health.

Is Stellar truly decentralized?

Yes. Though initially centralized due to foundation control, ongoing decentralization efforts—including validator diversification and open governance—have strengthened its decentralized nature over time.

How do I earn XLM?

You can earn XLM through:

Is XLM a good investment?

XLM’s value depends on adoption in remittance, micropayments, and DeFi use cases. With strong institutional backing and real-world utility, it remains one of the more fundamentally sound cryptocurrencies in the payments sector.

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Stellar continues to evolve as a mission-driven blockchain focused on equity, speed, and accessibility. Whether you're sending money across borders or exploring decentralized finance opportunities, XLM offers a compelling blend of innovation and purpose.