What is Stellar & How Does it Work

A Quick Overview of Stellar

Stellar serves as an open financial network where users can issue, transfer, and trade digital representations of various assets, including fiat currencies and cryptocurrencies. The platform was specifically designed to promote interoperability between traditional finance and blockchain technology, creating a bridge that enables seamless integration of conventional financial systems with decentralized networks.

The Stellar network operates on a decentralized infrastructure that allows participants to conduct transactions without relying on centralized intermediaries. This architecture significantly reduces transaction costs and processing times compared to traditional banking systems. For example, while international wire transfers through banks can take several days and incur substantial fees, Stellar facilitates cross-border payments in seconds with minimal costs.

XLM, the native asset on the Stellar network, plays a multifaceted role in the ecosystem. It enables quick transaction settlements by serving as an intermediary currency, acts as a reserve asset that protects network integrity by requiring minimum account balances, and facilitates smooth currency conversions between different asset types. This versatility makes XLM essential for the network's operation and scalability.

The Stellar Team

The Stellar Development Foundation was founded in 2014 by Joyce Kim and Jed McCaleb, bringing together expertise from both the cryptocurrency and technology sectors. McCaleb's background includes significant contributions to the digital currency space, having been involved in the creation of Mt. Gox exchange and the decentralized file-sharing network eDonkey, which demonstrated early peer-to-peer technology concepts.

Before establishing Stellar, McCaleb co-founded Ripple Labs, where he gained valuable experience in developing blockchain-based payment solutions. His decision to leave Ripple and create Stellar stemmed from a vision to build a more inclusive financial network that prioritizes accessibility for individuals and small businesses rather than focusing solely on institutional clients.

The team expanded to include other notable members such as Nicolas Barry, who serves as Chief Technology Officer and oversees the technical development of the Stellar protocol. David Mazières, a Computer Science professor at Stanford University, contributes academic rigor and research expertise to the project, ensuring that the Stellar Consensus Protocol maintains high standards of security and efficiency.

Stellar Consensus Protocol

The Stellar Consensus Protocol represents one of Stellar's most distinguishable properties, setting it apart from other blockchain networks. While popular cryptocurrencies like Bitcoin rely on proof-of-work mechanisms to reach consensus—which require significant computational power and energy consumption—Stellar utilizes the SCP, which offers a more efficient alternative.

Stellar originally started with the Ripple Consensus Algorithm (RPCA), a Practical Byzantine Fault Tolerant algorithm designed to ensure that a distributed system can continue operating correctly even if some nodes fail to communicate or act dishonestly. This approach provided a foundation for reliable consensus but had certain limitations that became apparent as the network evolved.

The RPCA operated through the following process:

1. A central authority selected and designated a predefined set of validators responsible for maintaining network integrity
2. These validators governed the system by collectively agreeing on the state of the network and validating transactions according to established rules
3. Once 66% of validators reached consensus on a particular state or transaction, it was permanently recorded on the blockchain, ensuring finality

Due to limitations in the RPCA—particularly concerns about centralization and the need for greater flexibility—Stellar adopted the SCP in 2015. The new protocol uses the Federated Byzantine Agreement Protocol to achieve consensus, allowing nodes to reach agreement on the network's state without relying on a central authority. This innovation enables faster consensus achievement with significantly lower energy consumption, making the network more sustainable and scalable.

Types of Protocol

The Stellar Consensus Protocol consists of two main sub-protocols that work together to ensure reliable consensus: the ballot protocol and the nomination protocol. These complementary mechanisms create a robust system for transaction validation and network state agreement.

For each consensus slot—representing a specific point in the transaction sequence—the nomination protocol proposes candidate values that the network can consider for acceptance. This phase involves nodes suggesting potential transactions or state changes based on their local information and the messages they receive from other nodes. The nomination protocol continues until nodes collectively determine that sufficient convergence has occurred.

Once nodes agree that the nomination protocol has converged on a viable candidate value, the ballot protocol begins its operation. During this phase, nodes engage in a structured voting process where they either commit to accepting the proposed value or abort it if inconsistencies or conflicts arise. This two-phase approach ensures that the network reaches definitive decisions while maintaining safety and liveness properties, ultimately leading to finalized consensus that all honest nodes can trust.

Quorums and Quorum Slices

Understanding quorums and quorum slices is essential to comprehending how the Stellar Consensus Protocol achieves decentralized agreement. A quorum represents a set of nodes required to reach an agreement in a distributed system. Once a sufficient threshold of nodes within a quorum has been met and these nodes concur on a particular decision, the network implements that decision as valid and binding.

Quorum slices are subsets of a quorum that can convince particular nodes to form an agreement. Unlike traditional consensus systems where all nodes must agree on the same validator set, Stellar allows each node to define its own quorum slices based on which other nodes it trusts. A single node can rely on several different sets of nodes and their statements, creating a flexible trust topology that adapts to the network's needs.

Trust relationships are configured within each node's configuration file, making dynamic formation of quorum slices possible and enabling true decentralization. This approach contrasts sharply with traditional Byzantine Agreement systems, which require that all nodes accept the same slices, necessitating closed and permissioned member access to the network.

Quorums intersect when they share at least one common node, creating overlapping trust relationships that help maintain network consistency. When quorums don't intersect—a situation known as disjoint quorums—this can lead to contradictory statements and jeopardize consensus, potentially causing network splits. The Stellar protocol includes mechanisms to detect and prevent such scenarios, ensuring network integrity.

Ripple vs. Stellar

While Ripple and Stellar share common origins and similar technical capabilities, they diverge significantly in their philosophical approaches and target markets. Ripple focuses on providing enterprise-grade solutions for banks and large financial institutions, offering tools for liquidity management and cross-border payment processing at scale. In contrast, Stellar prioritizes financial inclusion, aiming to serve individuals, small businesses, and remittance services that traditional banking systems often overlook or underserve.

Stellar vs. Bitcoin

The comparison between Stellar and Bitcoin highlights fundamental differences in design philosophy and intended use cases. Bitcoin pioneered blockchain technology as a peer-to-peer digital currency emphasizing censorship resistance and store of value properties. Stellar, developed years later, learned from Bitcoin's limitations and optimized for fast, low-cost transactions suitable for everyday payments and remittances, sacrificing some of Bitcoin's security guarantees for improved efficiency and user experience.

Institutions That Partnered with Stellar

Stellar has established strategic partnerships with various institutions and companies, demonstrating the network's practical applications and growing adoption in the financial technology sector.

1. Tempo: This French money transfer service provider plays a crucial role in the Stellar ecosystem by serving as the network's Euro anchor. Tempo enables users to deposit and withdraw euros, facilitating seamless integration between the Stellar network and traditional European banking systems. This partnership exemplifies how anchors function within the Stellar ecosystem to bridge fiat currencies and blockchain-based assets.

2. IBM: In a significant partnership announced in October 2017, IBM collaborated with Stellar to optimize cross-border transactions and facilitate the movement of money across international borders using XLM as the underlying asset. This partnership leveraged IBM's enterprise relationships and technical infrastructure to expand Stellar's reach into institutional markets, demonstrating the network's capability to handle enterprise-grade payment solutions.

3. SatoshiPay: The partnership with SatoshiPay, announced in 2017, integrated XLM as the underlying cryptocurrency ledger for its nano payment system. This collaboration enabled micropayments and content monetization use cases, showing Stellar's versatility beyond traditional remittance applications. SatoshiPay's adoption of Stellar demonstrated the network's suitability for handling high-volume, low-value transactions efficiently.

Additional partners contributing to the Stellar ecosystem include Flutterwave, which provides payment infrastructure across Africa; HTC Exodus, integrating cryptocurrency capabilities into mobile devices; The White Company, exploring blockchain-based loyalty programs; Ownbit, offering wallet solutions; Cowrie, facilitating remittances; and Curv, providing institutional-grade custody solutions. These diverse partnerships illustrate Stellar's broad applicability across different sectors and geographical regions.

How to Use Stellar

Stellar Payment Network

Users on the Stellar network utilize Lumens (XLM) to cover transaction fees and facilitate currency conversions, creating a seamless payment experience. The development team created Lumens with a specific focus on supporting effective remittances and cross-border payments, prioritizing the needs of individuals conducting everyday transfers rather than targeting banks or large financial institutions as the primary user base.

The network architecture enables users to send payments across borders quickly and affordably, converting between different currencies automatically when necessary. For example, a user in the United States can send dollars that are automatically converted to euros for a recipient in Germany, with XLM serving as the bridge currency that makes this conversion possible without requiring direct dollar-to-euro trading pairs.

To maintain network integrity and prevent ledger spam—malicious activities that could clog the network with meaningless transactions—Stellar requires users to pay a small transaction fee for each operation. Additionally, accounts must maintain a minimum balance, which is set at 1 XLM. This base reserve requirement ensures that accounts have sufficient resources to participate in the network while discouraging the creation of numerous inactive accounts that could burden the system.

Anchors and Credit

Anchors represent entities on the Stellar network that can hold deposits and issue credits into the network, serving as the critical bridge between different currencies and the blockchain-based ecosystem. Understanding how anchors function is essential for comprehending how Stellar connects traditional financial systems with its decentralized network.

Anchors typically back assets that don't originate on the Stellar network, such as fiat currencies like dollars, euros, or yen. When a user wants to bring external assets onto the Stellar network, they deposit these assets with an anchor. The anchor then issues equivalent credits on the Stellar network, which users can transfer, trade, or convert using the network's built-in exchange features.

The anchor's responsibilities include two critical functions: holding user deposits securely and issuing credits to corresponding accounts accurately. When users wish to exit the Stellar network and convert their credits back to traditional assets, anchors facilitate withdrawals by accepting the credits and crediting the user's wallet or bank account with the corresponding amount.

Trust plays a fundamental role in the anchor system, as users must trust that anchors will honor their obligations to maintain adequate reserves and process withdrawals reliably. The Stellar protocol includes mechanisms for users to explicitly set trust lines, indicating which anchors they trust and for which assets, creating a flexible system where users maintain control over their risk exposure.

Understanding XLM: Stellar's Native Asset

XLM, commonly known as Lumens, serves as the native asset of the Stellar network, designed specifically to facilitate fast and cost-effective currency transfers across the global financial system. Unlike many cryptocurrencies that primarily function as stores of value or speculative assets, XLM fulfills practical utility functions that are essential for the Stellar network's operation.

One of XLM's primary roles is serving as a bridge currency, allowing users to exchange various digital and fiat currencies without requiring direct trading pairs between every possible currency combination. For instance, converting Thai baht to Chilean pesos might lack sufficient liquidity in traditional markets, but using XLM as an intermediary enables this conversion efficiently through two liquid trading pairs: baht-to-XLM and XLM-to-pesos.

Key Use Cases

• Currency conversion: XLM streamlines cross-border transactions by acting as a mediator between currencies, eliminating the need for multiple intermediary conversions that would increase costs and complexity. This function is particularly valuable for remittance services and international commerce, where efficient currency conversion directly impacts profitability and user experience.

• Transaction fees: The Stellar network employs a minimal transaction fee structure, charging 0.00001 XLM per operation, to prevent spam attacks while keeping the network accessible to users worldwide. This nominal fee makes Stellar particularly attractive for micropayments and high-volume transaction scenarios where traditional payment processors would charge prohibitive fees.

• Network integrity: XLM maintains network security and efficiency through a minimum balance requirement, currently set at 1 XLM per account. This base reserve prevents malicious actors from overwhelming the network with numerous inactive accounts while ensuring that all participants have a stake in the network's proper functioning. The reserve requirement also helps maintain the network's scalability by limiting the number of accounts that must be tracked in the ledger.

Tokenomics

Stellar's tokenomics underwent a significant transformation to create a more sustainable and predictable economic model. Initially, the network issued 100 billion XLM with a 1% annual inflation rate designed to increase supply gradually. However, in November 2019, the Stellar Development Foundation made a pivotal decision to burn 50 billion XLM, effectively reducing the total supply by half and eliminating the inflation mechanism.

This supply reduction left a fixed cap of 50 billion XLM, creating scarcity and providing greater certainty for long-term holders and ecosystem participants. In recent market data, approximately 20 billion XLM circulates actively in the market, available for trading and use in transactions. The Stellar Development Foundation holds the remaining tokens in reserve, allocating them strategically for ecosystem development initiatives, partnership programs, and operational support to ensure the network's continued growth and stability.

The market has responded to Stellar's development and adoption, with XLM establishing itself as a significant cryptocurrency by market capitalization. The token's value reflects both its utility within the Stellar network and broader market sentiment toward blockchain-based payment solutions.

The Best Stellar Wallets

Selecting an appropriate wallet is crucial for securely storing and managing XLM while accessing the Stellar network's features. Different wallet types offer varying balances of security, convenience, and functionality to suit diverse user needs.

1. Ledger Nano S

The Ledger Nano S represents a hardware wallet solution that operates offline, providing maximum security by keeping private keys isolated from internet-connected devices. This cold storage approach protects against hacking attempts, malware, and phishing attacks that target online wallets. The device supports XLM alongside other popular digital assets including Bitcoin, Ether, Litecoin, and XRP, making it suitable for users managing diverse cryptocurrency portfolios.

The Nano S integrates seamlessly with the Stellar Account Viewer, allowing users to interact with the Stellar network while maintaining the security benefits of hardware storage. Transactions require physical confirmation on the device, adding an extra layer of protection against unauthorized access.

2. Atomic Wallet

Atomic Wallet offers a custody-free, multi-currency solution supporting over 300 digital assets, providing users with comprehensive portfolio management capabilities. The wallet enables users to exchange, manage, and purchase XLM within a secured environment that prioritizes user control and privacy. Atomic supports multiple operating systems including macOS, Windows, Linux, Android, and iOS, ensuring accessibility across devices.

Security features include local storage of private keys on user devices, protected by password encryption and a 12-word mnemonic seed phrase that enables account recovery. The wallet includes an integrated purchase option powered by Simplex, allowing users to buy XLM directly with fiat currency, though this convenience comes with a 2% service fee.

3. Stellar Desktop Client

The Stellar Desktop Client provides versatility by functioning as both a hot wallet (when connected to the internet) and a cold wallet (when offline), giving users flexibility to balance security and convenience based on their needs. This dual functionality makes it suitable for both active traders who need frequent access and long-term holders prioritizing security.

Users can create new wallets or restore existing ones using the desktop client, with accounts protected by passwords that are generated and stored locally on the user's computer. This approach maintains user control while providing a user-friendly interface for interacting with the Stellar network.

4. Stronghold Wallet

Stronghold operates as a multi-currency wallet built specifically on the Stellar blockchain infrastructure, serving as both an on-ramp and off-ramp for the Stellar network. This positioning makes Stronghold particularly useful for users who frequently move assets between traditional financial systems and the Stellar network, as it streamlines the conversion process.

The wallet emphasizes regulatory compliance and security, making it attractive to users who prioritize working with established, regulated entities. Stronghold's integration with the broader Stellar ecosystem provides seamless access to network features and services.

5. Guarda Wallet

The Guarda wallet delivers a multi-platform, non-custodial solution supporting the trading of Lumens and numerous other cryptocurrencies. Its availability across desktop, web, mobile, and as a Google Chrome extension ensures users can access their funds from virtually any device or platform, providing maximum convenience and flexibility.

Key features include built-in cryptocurrency trading capabilities that allow users to exchange assets without leaving the wallet interface, customizable transaction fees that let users balance speed and cost, and the ability to purchase Lumens directly using debit cards. This comprehensive feature set makes Guarda suitable for users who want an all-in-one solution for managing their cryptocurrency activities.

6. Lobstr Wallet

The Lobstr Wallet was created specifically for the Stellar network, offering optimized functionality for XLM and Stellar-based assets. Available on iOS, Android, and as a web application, Lobstr has received official endorsement from the Stellar Development Foundation, signaling its reliability and alignment with network best practices.

Lobstr stores coins directly on the Stellar network rather than on centralized servers, providing enhanced security through decentralization. The wallet protects private keys using robust encryption, though users should note that lost private keys cannot be recovered, emphasizing the importance of secure backup practices. This design prioritizes security and user control, making Lobstr ideal for users who understand and accept the responsibility of managing their own keys.

Stellar in 2025

Stellar was designed with the explicit goal of offering a more efficient and accessible solution for cross-border payments, addressing limitations in both traditional financial systems and earlier blockchain networks. The platform's focus on financial inclusion and low-cost transactions positions it to serve markets that traditional banking infrastructure often neglects or serves inadequately.

Despite facing challenges such as limited mainstream adoption compared to some competitors and ongoing needs for enhanced marketing and user education, the platform has successfully established partnerships with major companies and institutions. These collaborations contribute significantly to Stellar's growth trajectory and enhance its reputation within the financial technology sector.

While Stellar and XLM have not achieved the same level of popular recognition as some competing projects, the network maintains its position as a top blockchain project with a solid technical foundation, active development community, and clear vision for future development. The platform's emphasis on practical utility rather than speculative value creates potential for sustained growth as blockchain adoption continues expanding globally.

Looking ahead, Stellar's success will likely depend on its ability to expand partnerships, increase user adoption, and continue developing features that address real-world financial challenges. The network's open-source nature and commitment to financial inclusion provide a strong foundation for long-term relevance in the evolving blockchain ecosystem.

FAQ

What is Stellar? What are its main features and uses?

Stellar is a decentralized blockchain network designed for fast, low-cost international payments and digital asset circulation. Main features include efficient transaction speed and minimal fees. It enables global financial inclusion and cross-border payments.

What is the difference between Stellar, Bitcoin, and Ethereum?

Stellar focuses on cross-border payments with faster, lower-cost transactions. Bitcoin is a store of value using proof-of-work mining. Ethereum is a smart contract platform enabling decentralized applications. Stellar uses a different consensus mechanism and doesn't support mining or smart contracts like Ethereum.

How does Stellar's consensus mechanism work?

Stellar uses the Stellar Consensus Protocol (SCP), which relies on a trust network rather than miners or validators. Each node selects trusted nodes to achieve consensus, enabling higher efficiency and scalability without traditional proof-of-work or proof-of-stake systems.

How to trade and transfer on Stellar network?

Create a Stellar account, build a transaction with payment operation, and submit it to the network. Verify transaction status on Stellar Horizon server for confirmation.

What is the role of Stellar's native token XLM?

XLM is Stellar's native cryptocurrency used to pay transaction fees and prevent spam. It plays a key role in facilitating international remittances and cross-border payments on the Stellar network.

What are the main application scenarios of the Stellar network?

Stellar's primary applications include international remittances, asset tokenization, and DeFi. It enables fast, low-cost cross-border payments and serves as infrastructure for financial inclusion and decentralized finance solutions.

Stellar相比传统跨境支付系统有哪些优势？

Stellar provides faster and cheaper cross-border payments with near-instant settlement in 2-5 seconds and minimal fees. Being decentralized and open-source, it eliminates intermediaries. IBM partnerships enhance adoption. Transactions are cryptographically secure and accessible globally.