What Is Stellar? An Open Money Network in 2022

It’s built so that all of the world’s financial systems may communicate via a single network.

There is no owner; it is, in fact, owned by the whole public. Every day, millions of transactions are processed by the software, which works on a decentralized, open network.

What is Stellar intended for?

The coin began in 2014. Since then, it has completed over 450 million transactions from over 4 million accounts. Large corporations and single-dev startups alike have used Stellar to transfer money and reach new markets.

It has always been a cryptocurrency-adjacent program designed to improve rather than undermine or replace the current financial system. Unlike the Bitcoin network, Stellar is a decentralized system that allows for transparent and efficient money exchange.

The network has its own native digital money, the lumen, which is necessary to create accounts and make transactions (more info here), although Stellar does not favor any specific currency. Intended to make conventional money—the money people have spent and saved for centuries—more accessible.

Here are some examples of the coin’s uses. You may establish a digital dollar (a “dollar token” on Stellar) and inform the world that everyone who deposits a conventional $1 with you will get one of your new tokens.

When someone returns the “dollar token,” you pledge to exchange it for an actual dollar in that bank account. You create a 1:1 link between your digital token and a dollar. Every one of your tokens is backed by a deposit. People may regard the tokens like cash while holding them since they know they can be exchanged for cash later.

This may appear routine—every American bank issues electronic credits for dollars hundreds of times every day. This 1:1 offer of a token for a currency has worldwide ramifications. The underlying money never leave the United States, regardless of how a token flows through the economy.

So let’s say someone lends their tokens to someone else who then buys a vehicle. No bank must authorize the purchase or financing. Moreover, the seller of the automobile may own the tokens and exchange them anywhere they choose. A global network of money.

With digital dollar tokens, anybody may own, purchase, or trade the worth of a $1 without needing a US bank account. It is possible for a Venezuelan to own dollars. One may transfer dollars back home and have them securely stored digitally until ready to exchange.

This means an American corporation may pay a Mexican vendor in dollars, and the seller can pay its suppliers in turn, with no five-day delay. Because the digital token never moves, these transactions avoid the conventional banking system’s friction and costs.

It is now active on Stellar, via USD stablecoins like USDC – millions of dollars of worth pass through their currency every day. Of course, Stellar works with any money. A completely unified monetary system that retains the greatest features of what exists now.

Who builds on Stellar?

The Stellar network allows users to trade, save, and spend digital money quickly. Open financial infrastructure for builders. No permission or application is required to access it.

That basket of currency tokens is already on the network and ready to use. Accepted Are: euros, bitcoins, dollars, pesos, reais, and naira. Builders may concentrate on user experience while issuers manage deposit, redemption, and compliance.

So a financial institution may create new digital tokens to meet market demand, say for the Swiss Franc, without having to join a private “association” or deal with gatekeepers. With each new firm and developer, Stellar’s strength expands. Create your own wallet, app, or token using the powerful SDKs and documentation.

It is managed by the Stellar Development Foundation, a non-profit organization located in the United States.

The Foundation assists the technical and business communities around Stellar and works with regulators and organizations. The Foundation has no stockholders, so it can focus only on the development of Stellar as a public network.

The network values transparency. Stellar’s code is open-source and anybody may contribute. Many current SDF workers began working with technology in their spare time or for personal projects.

How does Stellar Function?

Stellar is a mechanism for tracking ownership. It does it via a ledger, but unlike traditional accountants, Stellar has no real accountant. Instead, a network of independent computers double-checks each other’s work. Despite the lack of a central authority, the ledgers are validated and updated every five seconds.

The Stellar Consensus Protocol (SCP) maintains everything in sync. There are several methods to gain consensus across a decentralized system—original Bitcoin’s and most renowned proof-of-work mechanism. Like many initial drafts, proof-of-work might be improved. SCP aims to be more customizable, faster, and more energy efficient. For further technical information, you may read the peer-reviewed work published by SOSP, the oldest and most distinguished systems conference.

Essentially, Stellar’s ledger tracks both what an account holder has (balances like “100 peso” or “5000 lumens”) and what they wish to do with it (operations like “sell 10 dollar tokens for 50 lumens” or “send 100 peso token to such-and-such account”). Every five seconds, the network receives and resolves all balances and transactions.

Nodes are machines that execute the Stellar core software and so publish and validate the ledger. With Stellar-built apps, you may transfer euro tokens to friends and family and have them check their accounts to verify whether they’ve been debited or credited correctly. Every node in the present Stellar network verifies the network, and anybody may install the Stellar program and join the consensus process. Unlike at a bank, where a single entity unilaterally controls what occurs, usually in secret.

Above this basic layer is a strong API that allows developers to build on Stellar without understanding distributed consensus. Simple, well-documented routines let you transfer new digital money with familiar models. It’s simple to exchange tokens, create marketplaces, and issue assets.

The Power Of Stellar

You can issue your own Assets

Stellar lets users to construct a redeemable, tradeable asset. Tokens are such representations. Tokens connected to currencies are the most beneficial (representing dollars, yuan, or euros digitally makes payments borderless and quick), but you might issue a token for corn bushels, gold, REIT shares, or an hour of consulting time.

In a way, Stellar is a universal toolset that anybody can use to achieve what Tether did for the Dollar with USDT or Coinbase with USDC. Stellar was developed for stablecoins before the term was ever used.

By default, every user may view, hold, and trade Stellar tokens, but this can be changed. If you need to comply with certain rules, you can:

• require that any holder of your token pass your KYC program
• enforce Reg D ownership requirements for your token
• control access to your tokens via multi-signature accounts
• create time-locked escrows for any account or asset

Tokenization is a crucial aspect of the network, thus the supporting code is tested and quick. Stellar’s strong capability of issuing and redeeming assets.

Stellar’s worldwide reach, near-instant transaction speeds, and ultra-low fees apply to all asset kinds. It’s easy to get started. Details in the documentation.

Trade tokens peer-to-peer

The Stellar protocol links buyers and sellers, and any token on the network may be exchanged for another. Users may easily post their bids or requests to the public network, and appropriate deals are instantly resolved every few seconds.

No one prepares settlement and no one serves as a custodian. In summary, Stellar’s ledger architecture includes a decentralized exchange (DEX).

It is a leading blockchain in this respect. Unlike Bitcoin or Ethereum, the Stellar system records and settles transactions across balances in a decentralized, ownerless manner.

Open orders for an NGN token against XLM may look like this:

This is a regular trading platform with open orders, transaction history, and market depth—but all of these features are tied to on-chain Stellar accounts. You’re not depending on an exchange to store your assets or resolve deals. You own assets. You command. The network ensures settlement.

Currency may be sent as Stellar

Stellar, like every payment system, enables users to transmit money.

User A may transfer User B dollars or lumens. However, Stellar also enables users to transfer one currency and receive another. Money may be transmitted and exchanged in a single atomic transaction.

A route payment. For example, an American corporation may pay a bill in Mexico using dollar tokens, while the seller gets peso tokens.

No exchange risk or delays. Both acquire their desired currency.

How it works:

• The sender in the U.S. holds dollar tokens and signals to the network they want to send peso tokens to the vendor.
• The network searches through the decentralized exchange described above and finds the best price for the sender.
• The network locks in the prices and amounts.
• The sender confirms the transaction and the dollar tokens leave their account.
• The transaction executes and the recipient gets the peso tokens. The payment is atomic and submitted to the network as a single transaction. Neither side can get “caught in the middle” and hold tokens they don’t want.

Above, the sender in the US does not need to possess pesos to pay in Mexico. The Mexican receiver does not get dollars to exchange for pesos. Stellar calculates the optimum conversion rate for both parties. Interoperability is realized by path payments: value flows easily from account to account in whichever form is most convenient.

Stellar for Remittances

Challenges with traditional remittances

Paying out in cash is a hassle with traditional MTO remittances. Agents and MTOs do not settle in real-time. Instead, owing sums are paid on a regular basis via a commercial bank.

MTOs must hold large amounts of funds in destination countries to finance transactions and pay agents. The ability to transport money to or from developing economies is unusual among digital banks and wallets.

With legacy systems, new entrants and developing fintech startups must establish in-country accounts and partnerships with local banks.

Correspondent banks impose fees and profit on currency exchange, increasing operational expenses. To compensate these extra expenses, remittance service providers levy fees or include them in the FX transaction. As a consequence, remittance receivers get less.

For the most part, entering new markets or expanding remittance services to those who need them the most is difficult due to the presence of middlemen, which generate long settlement periods and increase operational expenses.

Stellar’s way to Help

In addition to tracking the flow of safe, digital representations of foreign currencies, Stellar also assists companies in facilitating cross-border transactions without the need of middlemen such as correspondent banks, but rather via the use of two efficient payment protocols instead.

Businesses that use Stellar may link directly to an anchor network, which is a network of fully licensed fiat (conventional currency) acceptance and distribution partners who accept and distribute Stellar.

• Anchors are licensed and regulated financial institutions, money service businesses, or fintech companies that provide fiat on/off ramps to the anchor country’s banking system.
• Anchors often also provide ‘stablecoins’, one-to-one fiat-backed tokens, that users can redeem for fiat at any time.
• Anchors handle local regulatory processes such as KYC/AML.

Anchors take care of deposits, redemptions, and compliance, allowing companies who use Stellar to concentrate on providing a positive client experience. The average remittance experience enabled by Stellar is straightforward:

1. A sender funds the transaction in their country.
2. The funds are received by an anchor and represented on Stellar in the form of fiat tokens. 
3. Fiat tokens are converted over the Stellar network into the recipient’s currency via a path payment operation, using either the exchange rates on the Stellar Decentralized Exchange (DEX) or facilitated through a market maker.
4. ‍Funds arrive in the destination country. They can be transmitted to either the end-recipient’s wallet, bank account, or another local rail.

• Laura chooses to deposit USD
• Enters her KYC info
• Receives deposit instructions
• Transfers funds via ACH
• Receives USD tokens in her wallet

Because of Stellar’s efficiency, anchors and the companies they serve are able to deliver innovative, cost-effective financial services while also eliminating the need for middlemen in the settlement process. There is a rising number of anchors in various locations across the globe. Here are a few examples:

Cowrie 

One of Cowrie’s main jobs is to build and run electronic payment systems. They also issue a digital asset on Stellar called “NGNT.” Its value is the same as the Nigerian Naira, which is why it is worth the same. There is a Nigerian interbank payment network called NIBSS that NGNT is connected to.

This network allows for instant bank payments that finish in two minutes and are available 24/7/365. Users can make easy deposits and withdrawals because Cowrie’s anchor services are integrated into a number of Stellar wallets, as well as their own platform. They can also make direct payments to other anchors, like Tempo, from their own platform.

Settle 

Settle Network, located in Argentina, is a digital asset settlement network that operates in Latin America. The Argentine peso, Brazilian real, and Mexican peso all have them as anchors. This infrastructure is used by Settle to enable both exchange-related transactions and cross-border payments.

Tempo

Tempo is a Paris-based Money Transfer Operator and Stellar’s principal Euro anchor. Tempo’s EURT token has been utilized to allow low-cost Eurozone money transactions since 2017. Tempo supports B2B payments through EURT as well as EU clients remitting money to their family in the developing countries.

Finclusive 

Finclusive, the network’s newest USD anchor, is developing two intriguing Stellar solutions. It also serves as an on/off-ramp for current USD digital asset issuers like AnchorUSD.

By combining their knowledge, they offer compliant banking for the billions of people currently unbanked. All Stellar anchors may use Finclusive’s Compliance-as-a-Service platform to enroll consumers quicker, safer, and cheaper.

Benefits of the Stellar Network

Speed

Transactions on Stellar are verified in 3-5 seconds, which is very fast.

There is no necessity for upfront financing.

Real-time transactions with digital currencies help to reduce the amount of working capital required.

Support for the currency

Transact in a variety of currencies, including USD, EUR, NGN, MXN, BRL, ARS, and more… Alternatively, you may use your position as an anchor to generate new digital currencies tailored to your unique need.

Compliant

Built-in capabilities enable uniform KYC/AML through partners, as well as compliance with travel rules.

Tools for Developers

Comprehensive documentation, SDKs, and tutorials are all available via Stellar’s open-source developer tools.

Scale on a global scale

Stellar is a worldwide network that may broaden your company’s reach by connecting it to new people and regions.

Anchor 101’s

Now, each area has its own payment method (ACH, SEPA, SPEI), and they are not compatible. So they are trapped with SWIFT and the correspondent banking paradigm.

To connect these diverse local payment systems, Stellar allows the world’s currencies to be represented as digital fiat tokens on one decentralized ledger. This enables currencies to communicate with one other as well as with wallets and applications that utilize the Stellar network to offer customers with low-cost financial services.

The network depends on anchors, which are licensed financial institutions, money service organizations, or fintech enterprises that serve one or all of the following components.

1. Issue fiat tokens: Issue one-to-one fiat-backed tokens (also known as stablecoins) and maintain fiat reserves equivalent to the value of the issued tokens, so users can redeem them back to fiat at any time; and
2. Provide a fiat on/off-ramp: Connect the Stellar network to the anchor country’s banking system by maintaining a service that handles regulatory processes such as KYC/AML and allows users to make seamless deposits and withdrawals.

Individuals or groups of individuals may contribute these two components, in which case the fiat on/off-ramp becomes a reseller of the token issuer’s fiat token. ‍

The Anchor Opportunity

Stellar is establishing a new worldwide payment standard. Anchors may play a role in this endeavour.

Anchors may profit from a range of business models and monetization tactics, including deposit/withdraw fees, FX spread, seigniorage, and transaction fees.

Successful anchoring include API-based Banking-as-a-Service, cross-border B2B payments and invoicing, remittances, P2P payments, international payroll, and two-sided marketplace payments.

When issuing assets

• All client deposits should be stored 1:1 in guaranteed stablecoin redemption accounts.

• Issuers should hire a third party to verify that stablecoins are backed by money and maintained in dedicated accounts.

When creating an on/off ramp

• It is preferable for deposits and withdrawals to be handled using local domestic payment rails (ACH, SEPA, SPEI, and so on), rather than through wire transfer.
• In order to ensure smooth interoperability between wallets and anchors throughout the network, deposit and withdrawal processes should adhere to Stellar ecosystem standards, as detailed in Stellar’s developer documentation.
• A customer support function should be maintained by anchors to guarantee that client enquiries and/or issues are answered in a timely way.
• Anchors should maintain a robust anti-money-laundering policy and procedure, which should include the capacity to conduct Know Your Customer (KYC) checks on new clients.

All sites where an anchor makes their services accessible must adhere to the following requirements:

• Obligations relating to regulatory compliance, registration, and licensing in order to provide financial and money transfer services to the public
• Obligations relating to financial crimes, anti-money laundering, and counter-terrorism
• Rules and laws governing data privacy
• Cybersecurity techniques that are accepted by the industry
• Anchors must also adhere to the restrictions imposed by the United States

Becoming An Anchor Is Easy

Because Stellar was created specifically for the goal of tokenizing fiat currencies, producing stablecoins is a built-in capability of the network that does not need the use of smart contract programming.

Additionally, owing to widely recognized ecosystem standards and a specific set of tools intended to assist anchors in the deployment of deposit and withdrawal processes that smoothly interoperate with all wallets and applications in the ecosystem, launching a seamless fiat on/off-ramp is a simple procedure.

Stellar Lumens

Why Does Stellar Need Lumens?

The demand for lumens stemmed from Stellar’s ledger system’s architecture. Simply simply, it’s too simple. Without some minimal barrier or expense, the ledger might become a spam or nonsense database system. This would undermine the purpose of Stellar, which is to be a quick and efficient payment mechanism.

They wanted to provide just enough friction to prevent bad or frivolous behavior. These deterrent costs were set as a minimum account balance and a minor transaction charge. Currently, the minimum balance is 1 lumen, and the transaction charge is 0.00001. These are huge enough to deter large-scale bad conduct while keeping Stellar broadly accessible.

Since the coin is a worldwide digital currency, they could have accepted dollars, pesos, yuan, or any other currency. These didn’t seem right either. So if Stellar utilized dollars, for example, network pricing would be set for Americans but floating for everyone else. They also sought to establish a digital asset that is free of economic and political constraints.

So they created a network money to denominate network needs. The lumen is its name. With 4.3 million accounts presently, each one utilizes lumens to achieve minimum balance requirements and pay transaction fees.

Having a network token naturally facilitates money transfers between users. Lumens can always be used to trade otherwise illiquid assets since everyone owns them.

The lumen supply

Unlike other blockchain coins, lumens aren’t mined or given over time. Instead, when the Stellar network went online, 100 billion lumens were generated, and during the first few years, the quantity of lumens grew by 1% yearly.

The community voted to discontinue it in October 2019. A further reduction occurred in November 2019. There are around 50 billion lumens left, and no more will be made.

Nearly 20 billion lumens are traded, while the Stellar Development Foundation keeps the remaining 30 billion to develop and promote Stellar. Those lumens will be sold in the next years.

The Lumen Accounting guide contains thorough descriptions of main lumen metrics, as well as instructions on how to compute supply details using Stellar’s APIs.

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