Introduction
Stellar is an open-source, decentralized public blockchain designed for issuing, transferring, and exchanging digital assets. It supports payment services and financial applications involving its native asset, XLM, as well as assets issued by other organizations.
The network combines payment and asset-exchange functions with Soroban, its smart-contract platform. This makes it important to distinguish the Stellar network itself from XLM, individual issued assets, and applications built on the network.
What Is Stellar?
Stellar is a public network for sending and exchanging digital value. It can support payments, fiat-backed digital assets, tokenized assets, and other financial products and services.
The Stellar network and XLM are not the same thing. Stellar is the blockchain network, while the lumen is its native digital asset and uses the ticker XLM. Unlike assets created by external issuers, XLM is built directly into the network.
XLM is used for network transaction fees, minimum-balance requirements, transfers of value, and costs associated with Soroban smart contracts. These functions help support network operation and discourage excessive consumption of ledger resources.
Stellar also allows organizations to issue digital assets. Its protocol includes an order book for exchanging assets, path-payment functionality that can convert between assets during a payment, and Soroban smart contracts for building applications.
Stellar’s Background and Development
Stellar launched in 2014 with early contributors including Jed McCaleb and Joyce Kim. The nonprofit Stellar Development Foundation supports the network’s development and wider ecosystem.
The network’s technical design was substantially revised after its initial launch. A network based on the Stellar Consensus Protocol became operational in 2015, establishing the consensus approach that Stellar uses instead of proof-of-work mining or conventional proof-of-stake.
Stellar initially placed strong emphasis on payments, asset issuance, and asset exchange. Its scope later expanded through Soroban, a smart-contract platform integrated with the network. Soroban functionality was introduced to the main network through the Protocol 20 upgrade in 2024.
How Does Stellar Work?
Ledger and operations
Stellar maintains a shared ledger containing accounts, balances, orders, trustlines, and other network data. Transactions contain one or more operations, which are actions such as transferring an asset or placing an exchange order. The network’s nodes must agree on the order of transactions and the resulting state of the ledger.
Stellar Consensus Protocol
Stellar reaches agreement through the Stellar Consensus Protocol, commonly shortened to SCP. It is based on federated Byzantine agreement and is described by Stellar as a proof-of-agreement system.
SCP does not require proof-of-work miners to perform large amounts of computational work. It also differs from conventional proof-of-stake systems that assign validation influence according to staked tokens.
Under SCP, nodes select sets of other nodes whose agreement they consider sufficient. These trusted subsets are called quorum slices. Overlapping quorum slices allow a broader quorum of nodes to agree on the ledger state.
Accounts, fees, and minimum balances
Stellar accounts use XLM to pay network fees. An account must also maintain a minimum XLM balance based on the ledger resources it uses. The required amount is therefore not necessarily identical for every account.
These costs help discourage spam and the uncontrolled creation of accounts or ledger entries. Soroban transactions can also incur resource-related charges based on the computation, data, and storage they use.
Issued assets and trustlines
Organizations can issue assets on Stellar, including assets associated with fiat currencies or other forms of value. These assets are distinct from XLM because they generally have an identifiable issuer.
A trustline is a ledger entry indicating that an account is willing to hold a particular issued asset. Users generally need a trustline before receiving that asset. XLM does not require a trustline because it is Stellar’s native asset.
A trustline does not guarantee that an issued asset is valuable, fully backed, redeemable, or legally available to a particular user. Those questions depend on the issuer, the asset’s structure, and any applicable service terms or legal requirements.
Order book and path payments
Stellar includes protocol-level functionality for exchanging assets. Users can place buy and sell orders on the ledger, and compatible orders can be used to complete exchanges.
Path payments can combine transfers with asset conversion. For example, a sender can provide one asset while the recipient receives another. The result depends on available liquidity, exchange rates, spreads, and the available conversion path.
Soroban smart contracts
Soroban is Stellar’s integrated smart-contract platform. Its contracts are primarily written in Rust and compiled to WebAssembly for execution on the network.
Smart contracts allow developers to create applications that interact with Stellar’s payment and asset functions. Possible application categories include decentralized finance, tokenization, and other financial services, although each application has its own design and risks.
Key Features of Stellar
- Open public network: Stellar is an open-source, decentralized public blockchain intended for financial products and services.
- SCP consensus: The network uses the Stellar Consensus Protocol rather than proof-of-work mining or conventional proof-of-stake.
- Native XLM asset: XLM is built into Stellar and is used for fees, minimum-balance requirements, transfers, and smart-contract-related costs.
- Asset issuance: Organizations can issue digital assets on the Stellar ledger, with support for controls associated with native asset issuance.
- Trustlines: Accounts use trustlines to indicate their willingness to hold particular issued assets.
- Built-in exchange functionality: Stellar includes an order book through which compatible buy and sell orders can support asset exchange.
- Path payments: Payments can use available exchange paths so that the asset sent differs from the asset received.
- Soroban smart contracts: Stellar supports Rust-based smart contracts compiled to WebAssembly.
Advantages, Limitations, and Risks
Practical strengths
Stellar combines payments, asset issuance, asset exchange, and path payments within one protocol. Applications can use these integrated functions instead of relying exclusively on separate systems for each basic asset operation.
The network does not depend on proof-of-work mining to reach consensus. Its native XLM asset provides a common mechanism for paying fees and satisfying account resource requirements, while Soroban extends the network beyond its original payment and asset features.
Issuer and liquidity risks
The security of the Stellar ledger does not establish the reliability of every asset issued on it. An issued asset may depend on its issuer’s financial position, operating practices, reserve arrangements, redemption policies, or willingness to honor obligations.
Some assets may have limited liquidity. A user attempting to exchange or transfer them may encounter unfavorable exchange rates, wide spreads, or an unavailable payment path.
Smart-contract and application risks
Soroban applications can contain programming errors or security vulnerabilities. A smart contract may therefore fail or behave unexpectedly even when the underlying network continues to operate as designed.
Consensus and network-participation considerations
SCP depends on node participation and quorum configuration. Its safe operation is related to how nodes choose quorum slices and whether sufficient overlap exists among the participating nodes.
Custody and service-provider risks
Users can lose access to assets if they lose a private key or recovery phrase. Theft or exposure of this information can also allow another person to control the associated account.
Wallet providers, exchanges, custodians, and other services introduce separate risks. These can include security breaches, withdrawal restrictions, outages, or operational failures that are not the same as a failure of the Stellar protocol.
Market and regulatory risks
XLM’s market price can be volatile, and the network’s technical capabilities do not ensure that XLM or any issued asset will maintain or increase its value.
Rules affecting cryptocurrencies, stablecoins, tokenized assets, payments, taxes, and financial services vary between jurisdictions and can change. Availability may also depend on the policies of an issuer or service provider.
Common Uses of Stellar
Stellar can be used as infrastructure for transfers between individuals, businesses, and financial services. Readers may encounter it in products involving domestic or cross-border digital asset payments.
Organizations can use Stellar to issue fiat-backed assets and other tokenized assets. Whether an asset is backed, redeemable, or legally accessible depends on the issuer and the terms governing that particular asset.
The built-in order book and path-payment functions can support asset exchange and payments in which the sender and recipient use different assets. Actual results depend on market liquidity and the available exchange path.
Soroban can support decentralized finance and other smart-contract-based financial applications. Availability and legal requirements for these services may vary by jurisdiction, application, and service provider.
Frequently Asked Questions
Does Stellar use mining?
No. Stellar does not use proof-of-work mining, and XLM is not created through ongoing mining rewards.
Is Stellar a proof-of-stake network?
No. Stellar uses the Stellar Consensus Protocol rather than a conventional proof-of-stake process based on token staking.
What is XLM used for?
XLM is Stellar’s native asset. It is used for transaction fees, minimum account-balance requirements, transfers of value, and costs related to Soroban smart contracts.
Does XLM need a trustline?
No. XLM is native to the network and does not require a trustline. Trustlines generally apply to assets issued by external issuers on Stellar.
What is Soroban?
Soroban is Stellar’s smart-contract platform. Its contracts are primarily written in Rust and compiled to WebAssembly for execution on the network.
Does Stellar’s security make every issued asset safe?
No. Network consensus protects the shared ledger, but it does not guarantee an issuer’s reliability, an asset’s backing or liquidity, or the security of a smart contract, wallet, exchange, or other service.
References
- Stellar | Check Out Our New Docs!
- Stellar | FAQs Web3 Blockchain Guide for DeFi & Smart Contracts
- What is Stellar?
- 스텔라(Stellar, XLM) 위키
Key Takeaway
Stellar is a public blockchain focused on payments, digital asset issuance, transfers, and exchange. It uses the Stellar Consensus Protocol instead of proof-of-work mining or conventional proof-of-stake, while its native asset, XLM, supports fees and account requirements.
The network also provides trustlines, a built-in order book, path payments, and Soroban smart contracts. These capabilities should be considered separately from XLM market volatility and the issuer, liquidity, application, custody, service-provider, and regulatory risks associated with particular uses.
Disclaimer
This article is for general educational and informational purposes only and does not constitute investment, financial, legal, or tax advice. It does not recommend buying, selling, or holding XLM or any other digital asset.
AI-generated images used with this article are educational visual aids. They should not be interpreted as official project interfaces, products, technical diagrams, or exact representations of real-world systems. Separately supplied verified project icons or identity assets are distinct from AI-generated educational images.