Rating Summary:
Return: 8/10
Risk: High
Maturity: Long-Term + Short Term
Liquidity: Highly Liquid
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The Stellar Network was created to facilitate payments, transactions, and remittances across multiple geographies in a quick, reliable and cheaper way. Stellar connects banks, payments systems, and people with each other via a secure and decentralized payments network. Stellar was created in 2014 by Jed McCaleb who is one of the founders of Ripple. The Stellar Network is capable of providing all the services that a traditional bank does but uses a decentralized and open source platform to do so.
The key features of the Stellar Network are as follows:
Cheaper and Faster Transactions: At the current pricing, users can process around 100,000 transactions using just 1 XLM ( native stellar currency known as Lumens).
Stellar settles transactions within 2-5 seconds, which is faster than most of the existing solutions including Ripple.Decentralized Ledger: The Stellar ledger records a list of all the balances and transactions belonging to every single account on the network. A complete copy of the global Stellar ledger is hosted on each server that runs the Stellar software. Any entity can run a Stellar server, making the network decentralized. The Stellar servers communicate and sync with each other to ensure that transactions are valid and get applied successfully to the global ledger.
Anchors: Along with the Servers, the anchors are a key component of the Stellar Network.
Transactions in currencies other than the native XLM are done using the Anchors. The Anchors are the entities connected to the network which the users trust. When a user deposits a currency to the anchor, he receives equivalent credits on the Stellar Network. For eg., by depositing 100 USD with an anchor, I will receive 100 USD credits in my wallet. Existing banks and payment processors can become the anchors on the Stellar Network. These credits can be sent to any Stellar wallet in the world within seconds.Multi-currency transactions via a distributed exchange: Stellar allows you to send any currency you hold to anyone else in a different currency through the built-in distributed exchange. For example, Amy wants to send Bob euros, using her USD balance. Stellar automatically submits an offer to the distributed exchange selling USD for EUR. The network finds the best exchange rate for the transaction.
Smart Contracts: Stellar platform supports smart contracts, which can be used to facilitate trade agreements on Stellar. Some organizations are also using Stellar as an ICO platform to issue tokens. Stellar is not Turing complete, but the scalability and efficiency make up for the lack of programmable complexity.
Stellar can be used for use cases like facilitating remittance and micropayments, cheaper international transactions, financial services to the unbanked, issuing tokens, or even improving operations for banks.
Token
The Lumens (XLM) token is the native currency of the Stellar platform. When transactions are done using Lumens, users do not need Anchors to issue credits.
To use the network a person needs to hold a reserve of 20 XLM. There is a small transaction fee on the platform which needs to be paid in lumens.
At the network's genesis, 100 billion XLMs were created. The only other XLM creation mechanism is inflation. To account for both economic growth and lost tokens, there is a fixed 1% annual rate of new stellar creation. These new lumens will be generated on a weekly basis and distributed via a direct voting method. There are around 18 Billion XLMs in circulation today.
Team
Stellar was born in 2014. Stripe invested $3 Million, which was repaid with 2 Billion Lumens (XLR).
Co-founder Jed McCaleb is the face of the organization. Jed is the founder of the now-defunct Mt. Gox exchange (which he sold much before the infamous hacks) and Ripple. After disagreements with the other co-founders of Ripple, he created Stellar in 2014. The website lists 12 core members of the team, although there are other freelance contributors as well.
Stellar.org is the nonprofit organization that contributes to the development of tools and good social initiatives around the Stellar network and financial inclusion. Employees contribute code to the Stellar network, but the technology is independent of the organization.
Valuation
After registering unprecedented growth in 2017, XLMs is the 7th largest cryptocurrency regarding market capitalization.
On a relative valuation basis, Stellar can be compared with Ripple which is the 3rd largest cryptocurrency and commands 4X market capitalization than XLM.
Stellar Vs. Ripple
Both the platforms focus on cross-border payments and transactions. Ripple is a centralized currency while Stellar is decentralized. Ripple focuses on banks, and users need to use the banks as a gateway to access services. Stellar on the other hand uses banks and other payment organizations as facilitators of services. Users can use any anchor that they want.
Positives:
- Stellar can provide solutions for almost every use case involving financial transactions. Stellar provides cheaper, scalable and faster solutions involving any currency pair globally.
- Stellar Network’s design is regulatory friendly. Organizations which perform the task of integrators by accepting deposits and issuing credits will be licensed money services provider (MSP) or mobile money operator (MMO). Integrators are responsible for implementing all KYC/AML identity verification requirements.
- Stripe got on board with Stellar in the early days and is a major investor in Stellar. Stellar has also partnered with IBM to provide cross-border financial services. Stellar is aggressively partnering with some of the biggest organizations in the world.
- Stellar is becoming a popular platform for launching ICOs.
Negatives:
- Although the overall Stellar Network has amazing functionality, the XLM tokens do not have much value proposition from an investment perspective. For eg., a bank making millions of dollars worth of transactions on the network will still need to stake only 20 XLMs to access the network. Even if it does thousands of transactions, the transaction fees are so low that very few XLMs are required.
- The total token supply is 100 Billion which will keep on diluting the existing tokens.
- Majority of the tokens are yet to be distributed. The foundation controls all the rest of the coins to be distributed, and the investors are placing a lot of trust in the SDF that they won't mismanage the funds.
Rating
Stellar holds immense potential as it not only serves the banks and larger financial institutions but also the marginalized population of the unbanked and the immigrants.
We have some concerns about the XLM token’s valuation as we think there may not be enough organic demand for them going ahead. However, valuation of a cryptocurrency is not only a function of its organic demand but also its perception in the community. As Stellar grows and integrates with more partners and anchors, its positive perception will improve the valuation. Also, this is not just the review of the tokens but also the underlying technology, and we are extremely bullish on it.
Return: Stellar gets a positive rating in 12 out of 15 of our asset evaluation metrics. The positive score is significantly higher in Product, Product Status, Team, Partnerships, and Legal Metrics. Stellar gets an average rating in the Business Model and the Distribution Structure Metrics.
Stellar gets a negative rating in the Token Utility metric. We assign a Return Rating of 8 out of 10 to Stellar.
Risk: As mentioned in the Negatives section, the XLM tokens do have much value proposition from an investment perspective. A large number of noncirculating tokens create dilution risks for existing tokens. We assign a High-Risk Rating to Stellar.
Maturity: Short Term: Positive. The recent correction in cryptocurrency prices provides a good opportunity to invest in quality projects.
Long Term: Positive. We have a positive view on Stellar from a long-term investment perspective.
Liquidity: Stellar trades on major crypto exchanges like Binance, Bittrex, Poloniex which provides it ample liquidity.