Editor’s Note: This article was updated on Feb. 25, 2021 after publication to correct information on the holdings of founder Jed McCaleb and on the number of XLM coins outstanding.
Stellar Lumens (CCC:XLM=USD) is an open-source platform designed as an alt cryptocurrency that would ease money transfers around the world. It was started by Jed McCaleb who was a co-founder of Ripple and Mt. Gox.
Stellar is trying to work with a number of central banks to help them create cryptocurrencies. Stellar also has a working relationship with the central bank of Ukraine.
As of Feb. 24, XLM had a market capitalization of $9.289 billion, according to CoinMarketCap. That raned it as the 11th-largest cryptocurrency below such crypto names as Bitcoin, Ethereum, Tether, Cardano, Polkadot, XRP, Litecoin and Chainlink.
One difference between Bitcoin and Stellar is that XLM cannot be mined. There is no proof-of-work algorithm that has to be solved and in which XLM can be earned as rewards.
The 100 billion XLM initially created were slashed by half after a deflation mechanism was put in place to counter the 1% yearly inflation. Instead, out of a total 50 billion Lumens, 20 million were released into the market while the Stellar Development Foundation (SDF) held the 30 billion XLM balance. That balance is directed under SDF’s mandate to spend or distribute to enhance and promote Stellar.
XLM Price and Performance
The Stellar Lumens coins cost about 40.9 cents which makes XLM more expensive than a number of alt currencies. For example, Dogecoin is another alt cryptocurrency that is popular but it costs less than 6 cents. However, other than Tether, which is at $1.00, it is the highest priced alt-crypto below $1.00.
So far this year Stellar has appreciate 209% from 13.24 cents at the end of 2020. In fact, even in the last month, it is up 56.5% from 26.16 cents on Jan. 24.
This compares with a gain of just 69.12% for Bitcoin year-to-date and 53.5% in the past month. So Stellar has risen commensurately with Bitcoin in the past month but has outperformed since the beginning of the year.
However, in the last year, Bitcoin has risen 478% whereas XLM has jumped 623%, up from 5.63 cents a year ago. So when cryptos move Stellar tends to move much more than the larger cryptos.
Stellar’s Work With Central Banks
The Stellar Development Foundation, which supports the Stellar protocol, announced in early January 2021 that it had signed a deal with Ukraine’s Ministry of Digital Transformation.
The work involves “development of the infrastructure for a Ukrainian national digital currency.” This is what is called a CBDC or Central Bank Digital Currency.
In a recent report by KPMG cited the European Central Bank and the Bank of Japan initiative called ‘Project Stellar‘. The idea was to study the ability of distributed ledger technology (DLT) to process large-scale payments. DLT is the same thing as blockchain technology such as Stellar’s protocol.
The deal with the Ukraine Ministry of Digital Transformation helped push up Stellar to the 40-cent value level. The market began to realize that Stellar had a good chance at being adopted as a platform technology for central bank development throughout the world.
What To Do With Stellar Lumens
Having one major CBDC deal under its belt gives Stellar a lot of credibility in terms of its blockchain platform. But it may have to work harder to get other deals so that the alt currency gains more credibility.
However, for investors in cryptocurrencies, Stellar Lumens is a definite alternative or alt-currency in which they can diversity holdings. For example, as I showed above Stellar has had significant outperformance compared to Bitcoin.
So far Stellar has no celebrity like Elon Musk, who has been championing both Bitcoin and Dogecoin, as an alt currency, as well as making some big BTC bets via Tesla (NASDAQ:TSLA). Something like that would give Stellar another boost and propel it into the national conversation on cryptos.
Stellar is a quieter alt currency in that regard. Nevertheless, it has still outperformed Bitcoin and Ethereum in the past year. As more and more people become interested in alt currencies, their attention will eventually turn to Stellar. Perhaps that will help it breakthrough into the global top 10.
This alt-currency has a good chance of sticking around for the long term. Investors who want to diversify out of just owning Bitcoin as a cryptocurrency might consider Stellar Lumens.
On the date of publication, Mark R. Hake holds a long position in Ethereum and Bitcoin.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
