What Is Stellar (XLM)? How It Works, Use Cases and Risks

Stellar is an open-source blockchain network designed for fast, low-cost payments and for issuing digital versions of real-world money, and XLM (lumens) is its native cryptocurrency, used to pay network fees and keep accounts active. It is supported by the Stellar Development Foundation (SDF), a nonprofit organization, and is often used to move stablecoins and local currencies across borders.

Stellar is less talked about than many newer networks, but it has a long history and a clear focus: connecting financial institutions, payment companies and individuals through a shared ledger. This guide explains where Stellar came from, how its consensus works, what XLM is for, and the risks to keep in mind. For live price and market data, see the Stellar coin page.

Origins of Stellar

Stellar was founded in 2014 by Jed McCaleb, who had earlier co-founded the XRP Ledger project, and Joyce Kim. The Stellar Development Foundation was set up as a nonprofit to support the network's development and adoption.

The network originally used a modified version of the XRP Ledger's code. In 2015, Stellar launched its own consensus system, the Stellar Consensus Protocol (SCP), designed by Stanford professor David Mazières. Our XRP vs Stellar comparison explains how the two networks diverged.

How the Stellar Network Works

Stellar Consensus Protocol

SCP is a form of federated Byzantine agreement. Instead of mining or staking, each validator chooses a set of other validators it trusts, called a quorum slice. When these overlapping slices agree on a transaction set, the network reaches consensus. Ledgers close in a few seconds, and transactions are final once included.

Because there is no mining, the network uses little energy and fees can stay very low.

Anchors and assets

Anyone can issue a token on Stellar, but the network's design centers on anchors: regulated businesses that take deposits in a traditional currency and issue a matching token on Stellar. Users can send that token across the network and cash out through an anchor elsewhere.

Stablecoins such as USDC are issued natively on Stellar, which makes it a common rail for dollar transfers. For background on the project itself, see PayPal USD (PYUSD) explained.

Built-in exchange and path payments

Stellar includes a decentralized exchange at the protocol level. A path payment can automatically convert one asset into another on the way, so a sender can pay in one currency while the recipient receives another. For a scenario-based view of where XLM could head, read Stellar (XLM) price prediction 2026–2027.

Soroban smart contracts

Stellar has added Soroban, a smart contract platform that allows developers to build applications such as lending or more complex payment logic directly on the network.

What XLM Is Used For

Supply Design in Plain Words

All lumens were created at launch, and Stellar originally had a small built-in inflation mechanism. In 2019, the network voted to remove inflation, and the SDF burned roughly half of the total XLM supply, reducing the amount it held for distribution. Since then, no new XLM is created. The SDF still holds a meaningful share of the supply, which it uses for ecosystem programs and operations. Compare circulating and total supply on the live coin page before drawing conclusions; our guide to supply metrics explains the difference.

Real-World Use Cases

• Cross-border remittances using stablecoins and local currency anchors.
• Stablecoin transfers, with USDC issued directly on the network.
• Payouts and disbursements, for example humanitarian or aid payments, where low fees matter.
• Tokenized assets, including tokenized fund shares issued by financial firms.

Risks and Criticisms

• Anchor trust. Tokens issued by anchors are only as reliable as the anchor's reserves and its willingness to redeem.
• Validator concentration. Critics note that a relatively small number of organizations, including the SDF, run many important validators. Supporters point out that the protocol allows anyone to run a validator and choose their own quorum.
• Foundation influence. The SDF's holdings and leadership give it substantial influence over development and the ecosystem.
• Competition. Many networks now offer cheap stablecoin transfers, so Stellar's advantages are less unique than they once were.
• Network halts. Like several other networks, Stellar has experienced incidents in which ledger closing paused, which is a trade-off of its safety-first consensus design.

How to Find Official Information and Avoid Fakes

XLM is native to the Stellar network, so it has no token contract to verify there. Instead:

• Use the official website, stellar.org, for documentation and announcements.
• When depositing XLM to an exchange, include the memo if the exchange requires one; without it, funds may not be credited to your account.
• Before holding a token issued on Stellar, check its issuer account, since anyone can issue a token with any name.
• Be cautious of "XLM airdrop" messages or sites asking for your secret key; Stellar secret keys start with the letter S and should never be shared.

Our guide to verifying a token's official contract address covers the same principle for tokens on other chains.

Bottom line

Stellar is a long-running, payments-focused network that uses federated consensus, anchors and a built-in exchange to move money cheaply across borders. XLM pays fees and keeps accounts active, with no new lumens being created. The network's strengths in stablecoin transfers and low fees are real, but so are its reliance on anchors, the influence of its foundation and growing competition. Always include memos for exchange deposits and verify asset issuers before trusting a token.