Stellar (XLM) is a payments protocol that aims to connect banks, payments systems, and people. The networks native token is currently ranked 8th on the BraveNewCoin market cap table. The XLM spot price is down 89% from an all time high of US$0.72, set in January 2018. The market cap currently stands at US$2.05 billion with US$201.68 million in exchange volume over the past 24 hours.
XLM was created in 2014 by founders Jed McCaleb and Joyce Kim. The genesis block minted 100 billion tokens. The project is analogous to Ripple (XRP) in many ways, where McCaleb previously worked.
McCaleb also created the Stellar Development Foundation (SDF). The foundation's mission is to promote global financial access, literacy, and inclusion by expanding worldwide access to low-cost financial services through the development and maintenance of technology and partnerships. The SDF was incorporated in 2014 as a non-stock nonprofit corporation in the U.S. State of Delaware. The SDF is not currently an independently operated 501(c)(3), or non-profit, but did apply for this distinction in 2015.
Source: https://dashboard.stellar.org/
XLM originally used the Federated Byzantine Agreement (FBA) consensus mechanism, pioneered by XRP. This mechanism was changed to the Stellar Consensus Protocol (SCP) by XLM's chief scientist, David Mazières, in 2016 after the chain was unable to maintain reliable consensus.
Neither projects uses Proof of Work or Proof of Stake, but instead use validators to confirm transactions on the network. Validators do not receive a block reward. Anyone in the XLM network can be a validator, so the user must decide which validators to trust. Ideally, each trust group, or quorum slice, has overlapping transactions with other groups, and thus can collectively achieve consensus.
SCP quorum intersection ensures that each quorum slice is always linked by one node with consensus agreement based on a large pool of individuals or validators. The XLM network currently has 130 active public nodes, with 61 active validators over the past two days. Most of the nodes reside in the United States and Europe.
The XLM supply grows at a fixed rate of 1% per year. The coins created to satisfy the yearly inflation rate are distributed through an inflation pool. The network transaction fees are also collected and placed in the inflation pool. Every account in the inflation pool votes for another account to receive the reward, which is deposited once a week. To receive rewards from the inflation pool, an account is required to obtain at least 0.05% of the total votes. Voting is weighted according to the number of lumens the voting account holds, essentially acting as a staking reward.
According to the Stellar Dashboard, there are currently 104.82 billion XLM in existence with and 2.88 million accounts on the XLM ledger. About 8.65 billion XLM have been distributed through airdrops or to promote partnerships and user growth. Of the current total supply, 19.22 billion XLM tokens are not held by the Stellar Development Foundation (SDF), which is run by McCaleb and Mazières. Based on available inflation pool statistics, 4.77% of the total XLM circulating supply is currently being staked.
Unlike XRP, there have been no announcements of programmed or controlled escrow plans regarding the large non-circulating supply held by the SDF. There has been some concern that the holdings of the SDF are being used to perpetually collect the inflation pool reward.
Source: https://stellar.expert/explorer/public/asset/XLM?filter=asset-holders
In late 2018, the SDF announced an up-to-500 million XLM distribution, or airdrop, through blockchain.com, which added wallet support for XLM. The airdrop is ongoing and is touted as encouraging first-time crypto users, and the crypto-curious. Each user can receive US$25 in XLM, after KYC verification in the form of an email address and identity documentation.
The Stellar team has also announced partnerships with remittance agencies Tempo and ZED, ICOs Smartlands and Mobius, at least 10 stable coins, including Stronghold and Novatti, and Hyperledger. Smartlands is a platform for security token offerings. Mobius raised US$39 million in January 2018 and compares itself to the Stripe payment gateway. Stronghold is an FDIC-insured USD stablecoin backed by IBM. Novatti is a 1:1 backed Australian dollar (AUD) stable coin, with funds held in trust, which is similar to Tether. Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies and includes almost 300 companies.
This week, IBM announced the launch of World Wire, which is a payments system built on the XLM network. Six international banks have signed letters of intent, indicating that they will either use XLM or issue stable coins on IBM's service, pending regulatory review. IBM also has several validators on the XLM chain.
The XLM ecosystem also includes Interstellar which allows enterprises and institutions to use and build on the XLM network. The product combines the Chain and Lightyear brands. Chain's products included Sequence and Chain Core. Sequence was a cloud-based ledger service for managing balances in financial and commerce applications like wallet apps, lending platforms, marketplaces, and exchanges. The Chain Core software was designed to operate and participate in permissioned blockchain networks.
The XLM network uses a default transaction fee of 0.00001 lumens to prevent spam or Denial of Service attacks. In USD terms, average transaction fees on XLM have risen substantially over the past few weeks (orange fill, chart below). The average transaction fee is currently at a record high of US$0.001844, having continually risen since April 2017. Average transaction fees on the XLM chain still remain much lower than most chains, but about 28x more expensive than XRP (grey fill, chart below).
The current number of transactions per day on the network (line, chart below) stands at ~1,500, following a subtle rising trend since August 2018. A record high in transactions per day correlates with record high prices around December and January 2017. The average transaction value (fill, chart below) is currently ~US$500, down from a July high of US$3,000. Average transaction values have ranged around US$500 since June 2017.
Source: coinmetrics.io
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) began to rise in mid-February. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Inflection points in NVT can also be leading indicators of a reversal in asset value. XLM's NVT is currently higher than XRP's NVT by 20-fold.
Daily active addresses (fill, chart below) have continued to increase since September 2018, and are again nearing record levels around 10,000. Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe's law. Grassroots interest in the project includes over 8,000 members in 28 Stellar groups on meetup.com.
Turning to developer activity, the Stellar project has 91 repos on GitHub. In total, over 300 developers have contributed to the XLM project, with a cumulative 2,500 commits in the past year, mostly on the main repo (shown below). Stellar Core v10.3.0 was released last week with minor stability improvements.
Most coins use the developer community of GitHub, which was acquired by Microsoft for US$7.5 billion earlier this year. Files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
Source: https://github.com/stellar/stellar-core/
XLM exchange traded volume over the past 24 hours has predominantly been led by Bitcoin (BTC) and Tether (USDT). There is also a higher percentage of Korean Won (KRW) volume when compared to most pairs. The majority of trading has occurred on fatbtc, LAToken, and Binance.
Last year, XLM had several exchange-related announcements including; OKCoin listing XLM/USD, XLM/BTC, and XLM/ETH trading pairs, and XLM added to the Circle Invest and BitGo platforms. Coinbase also listed XLM earlier this month. Stellar also released StellarX recently, a third-party client built on top of Stellar's open marketplace. StellarX holds no custody of any assets, but the client is also not a DEX, and there are no fees. The platform includes a fiat on-ramp through ACH transactions from a U.S. bank account.
Google Trends data for the term "Stellar" has essentially remained pinned to the floor throughout most of 2018 and early 2019 aside from a small uptick in mid-February (chart below). A slow rise in searches for "stellar" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and BTC price whereas a 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
Technical Analysis
Throughout late 2018, XLM followed the rest of the crypto market with a significant downward decline. Since then, price has stabilized near the May 2017 high. The strength of a potential trend reversal can be mapped using exponential moving averages (EMAs), Volume Profile of the Visible Range (VPVR), Pitchforks, Ichimoku Cloud, and chart patterns. Further background information on the technical indicators discussed below can be found here.
On the daily chart, the 50 and 200 day EMAs have been bearishly crossed since June 21st. Price has mostly remained below the 200 EMA since that cross. Price is also bound by a bearish Pitchfork with anchor points in January, June, and November and would need to breach US$0.133 to invalidate the bear trend. A breach of the median line support (yellow) would likely result in a drop into the US$0.05 to US$0.035 zone. VPVR also shows support near US$0.05 and lower. There are no active volume or RSI divergences currently (not shown).
Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price position in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best trade entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
Cloud metrics on the daily time frame with singled settings (10/30/60/30) for quicker signals are neutral; price has recently re-entered Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span below Cloud and above price. XLM experienced four bullish Kumo breakouts throughout 2018, all of which quickly turned bearish after failing to gain additional momentum. The flat kumo at ~US$0.188 remains a high probability reversal target if the bull trend materializes.
The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are bearish to neutral: price is in Cloud, the Cloud is bearish, the TK cross is bullish, and the Lagging Span is below the Cloud and above price. A traditional long entry signal, or Kumo breakout, will not trigger until price reaches above the Cloud.
However, the Cloud is showing a potential bullish Edge to Edge trade. Price has entered one edge of the Cloud and is expected to reach for the other edge of the Cloud, near US$0.18. These Edge to Edge trades have a higher probability of success when the TK cross matches the direction of the trade, which is currently the case. Stop losses for these trades should be placed just below Cloud support, currently at US$0.09
Lastly, on the XLM/BTC pair, the daily chart is very similar to the analysis above for the XLM/USD pair. The 50 and 200 day EMAs have been bearishly crossed since December 22nd. Price is currently being squeezed between the EMAs and will likely make a definitive decision on direction after a bullish EMA cross. Cloud metrics are bearish to neutral with an active Edge to Edge trade targeting 3400 sats. There are no active volume or RSI divergences currently (not shown).
Conclusion
Fundamental network metrics for XLM show fees rising substantially with no significant rise in transactions per day, which may point to a scaling issue in the near future. Despite the flat or slightly rising usage metrics over the past few months, comparatively, XLM has much lower usage than other chains. Based on the recent XLM partnerships, the network wants to directly compete with XRP in the remittance realm, and ETH in the ICO and STO realm. Initially, the low transactional cost on XLM was more attractive than its peers for ICOs, dApps, and general value transfer, but that competitive advantage will disappear if fees continue to rise.
Technicals based on trend indicators show the potential for a bullish reversal on both the XLM/USD and XLM/BTC pairs, with targets of US$0.18 and 3400 sats respectively. Although a Coinbase listing briefly spiked the XLM price, bullish momentum does not appear to be have been sustained. The blockchain.com airdrop will also likely be a near-term bearish event, as most users will collect the XLM and sell it on the spot market, which has been the case for both of the previous XLM airdrops. If price does make lower lows, at least a 50% drop is likely based on the lack of historic price support.