Stellar Review

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When analyzing a project, the Eden Labs team looks for projects that do something unique or do it much better than its competition. Quality projects should be able to explain complex ideas simplified to their audience. In addition, projects that rely heavily on a broad user base have to have an incentive for the first ten people to join the network before a million users is ever achievable. No project will succeed if it requires a million participants to bring any value to its users.

 

Summary

Stellar is a digital currency that seeks to connect banks, payment systems, and people by integrating processes and enabling quick, reliable fund transfer at minimal cost. Forked from the Ripple protocol and re-structured, Stellar seeks to expand access to low-cost financial services at a global scale, with a focus on token safety and protocol accuracy.

The defined purposes of the project are to provide:

  • Remittances
  • Mobile Bank Branches
  • Mobile Money
  • Micro-payments, and
  • Serve the unbanked

 

Industry Need

Currently, mobile cell phones are used to make payments between individuals and entities in third world markets. These transactions are typically conducted through feature phones with 3×4 keypads. Additionally, these payments are made through centralized telecom networks that are at risk of large-scale entity bribe requests and service provider shutdowns. There is a need for a speedy, decentralized microtransaction payment system with minimal fees attached.

A driving mission of Stellar is to “bank the unbanked,” which currently targets 1.7 billion people who don’t have access to a bank account. Additionally, unbanked individuals in the third-world are more likely to have access to mobile phones than to toilets or clean water. The rapid development of mobile telecom technology and decentralized systems has created an opportunity to integrate a large portion of the world into new financial markets through leapfrog development that places wireless technology into their hands.

Competition within the fund transfer industry includes traditional wire service providers such as Western Union. These services are slow, costly, and rigid. The transfer model of such competition lacks the ability to service the third world because of the high cost and slow service.

With regards to competition within the cryptocurrency industry, one of Stellar’s largest competitors – in terms of remittances – is Ripple. However, Ripple differs from Stellar as it focuses on payment processing for banks and international corporations.

 

Solution

Stellar is solving the mobile payment and fund transfer pain points by focusing on cross-border payments, microtransactions, and intermediary currency functionality. It bypasses the need for a physical bank and seeks to serve a portion of the population that uses mobile phones to transmit money for goods and services. This technology is relevant to the blockchain and remittances industry because it seeks to provide access to a new market of global citizens who use cellular technology to make purchases and participate in the macroeconomy. This opens an enormous population to the potential of decentralized applications and payment systems.

 

Tech Analysis

The stellar protocol was originally a fork of the Ripple consensus protocol in 2014; however, by May of 2015, Stellar and Ripple shared little of the same code. Some critical components of Stellar’s technology include:

  • Stellar Consensus Protocol (SCP)
  • Decentralized Exchange (DEX)
  • External Data Representation (XDR)
  • Multi-signature transactions

 

Tech Breakdown

Stellar Consensus Protocol (SCP)

The SCP is a practical Byzantine fault tolerance (PBFT), which provides a mechanism to reach consensus without being dependent on a cloud-based system to record financial transactions accurately. The consensus protocol optimizes “safety over liveness,” and will halt the progress of the network if a misbehaving node is detected. SCP has the following four characteristics: decentralized control, low latency, flexible trust, and asymptotic security.

Decentralized Exchange (DEX)

Stellar’s DEX provides a marketplace for any asset built on top or incorporated into the network. Users can make offers, see order books that record outstanding orders, make passive offers, make cross-asset payments, and choose their preferred currency.  

External Data Representation (XDR)

XDR is used throughout the Stellar network and protocol to encode and transfer information related to the ledger, transactions, results, history, and messages between computers. The data is compact, making it easy to transmit quickly and store with minimal disk space. Fields are stored in the same order, which makes cryptographically signing and verifying XDR messages simple. Lastly, XDR’s embedded definitions are able to contain data types and structures other file formats are unable.

Multi-signature transactions

Signatures are used as authorization, which is needed from at least one public key to be considered valid. Stellar uses the ed25519 signature scheme, as well as a mechanism for adding additional types of public/private key schemes. There are two cases where a transaction might need more than one signature; if an operation affects more than one account, or if a transaction involves an account with multiple public keys. Users will be provided with the ability to choose how secure the transaction can be made through adding weight to the master key, and the addition of other signing keys.

 

Verdict

Stellar’s technology effectively allows the project to achieve its goal of providing microtransactions, quickly and with minimal fees, as well as serving as a platform for ICOs. For projects that seek to launch an ICO on top of Stellar, they’ll be able to use multi-signature contracts and can expect their smart contract to reach consensus safely. Minimal requirements for transferring data in XDR format allows for the network transmission fees to remain low. Additionally, Stellar’s code is open-source and on GitHub for developers to actively partake in the development of the network.

 

Roadmap

Stellar’s 2018 roadmap includes the development of a decentralized exchange labeled “SDEX,” increased brand recognition and ecosystem support, Lightning on the network, and other tech objectives. The roadmap doesn’t clearly outline the four objectives as previously listed, but the information is available in their webpage documentation.

  • SDEX aims to provide on-chain protocol-level trading for any Stellar token. The primary objectives of the platform are “day one trading” of any Stellar ICO token, low rate atomic pathfinding for token assets, low trading fees, and end-user control of private keys.
  • The team aims to increase brand and ecosystem support by providing better overall brand communication, more implementation walk-throughs to help people get going, better technical documentation, and continual improvement to Horizon API and the surrounding SDKs.
  • With regards to its technological objectives, Stellar seeks to implement the Lightning network into their platform for long-term scalability and security. The “hardening” process will strive to reduce the attack surface at the protocol layer by adding invariant support to increase resiliency and security. And, a focus will be made on decentralization to make running a full validator easier, and to allow for nodes to be more self-sufficient and reliable through minimal node-maintenance overhead.

 

Verdict

The project goals are outlined and documented with regards to the ecosystem, technical and product development. However, there are no definite dates or milestones listed for achieving the goals outlined at the beginning of 2018. These goals and objectives appear to be reasonable, and Stellar has already taken actionable steps by recruiting a veteran team with product and marketing success to build a front-end for SDEX. We will need to rely on their Twitter and Reddit releases for project updates and to follow GitHub for product development update.

 

Token Economics

Token Acronym: XLM

Circulating Supply: 18,770,261,348 XLM

Total Supply: 104,164,783,043 XLM

Market cap: $4,585,643,167 USD (645,448 BTC)

Market cap at launch of project: $772,596 USD [August 4th, 2014]

Distribution: The Stellar Developer Foundation (SDF) hasn’t necessarily developed a token release schedule, but has allocated distribution in the following manner:

  • 50% for distribution via the Direct Sign-up Program
  • 25% for distribution via the Partnership Program
  • 20% for distribution via the Bitcoin Program
  • 5% held by SDF to support operational costs

Inflationary factors: Stellar has a built-in, fixed, nominal inflation mechanism. New XLM are added to the network at the rate of 1% each year. Each week, the protocol distributes these lumens to any account that gets over .05% of the “votes” from other accounts in the network.

Intrinsic Token Value: the XLM token has two purposes:

  • Remittance: XLM is used for transferring money/value from one party to the next
  • Utility for ICO platform: XLM is used as the currency of the initial coin offerings (ICOs) for projects like SmartLands, Mobius, SureRemit, Mad Network, and Pinnacle Brilliance among other upcoming ICOs.

 

Verdict

Within the Stellar ecosystem, projects are launching ICOs, and global microtransactions are taking place on the network. XLM tokens were well distributed as 95% of the tokens were distributed to the community through the direct sign-up, partnerships, and bitcoin programs; and, 5% held by the Stellar Development Foundation (SDF). Within the ecosystem, the XLM token has inherent value as the token is a) used for micro-transactional payments on a global scale, and b) XLM is used as the currency for initial coin offerings (ICO) that launch on the Stellar network. Such ICO’s thus far have included SmartLands, Mobius, SureRemit, Mad Network, and Pinnacle Brilliance among other upcoming project launches. Additionally, Stellar has incorporated inflationary mechanisms into its network. Overall, the token has a fundamentally sound marketcap, use cases, distribution, and built-in inflationary mechanism.

 

Team & Leadership

Jed McCaleb, Co-Founder

  • Founder of eDonkey2000
  • Founder of Mt. Gox
  • Founder and Former CTO of Ripple.

Bartek Nowotarski, Co-Founder

  • Master’s in Computer Science from Jagiellonian University.
  • Lead Developer and Security Consultant who has found vulnerabilities in high-profile sites such as Facebook and Yahoo.

Nicolas Barry, CTO

  • Master’s Degree in Computer Science and Mathematics from ENSEEIHT in Toulouse, France.
  • Helped build large-scale systems at Microsoft and Salesforce.

David Mazières, Chief Scientist

  • Professor of Computer Science at Stanford University leads its Secure Computer Systems Group.
  • BS in Computer Science from Harvard and Ph.D. in Electrical Engineering and Computer Science from MIT.

Boris Reznikov, Director of Partnerships

  • Master’s in Business Administration from Duke University.
  • Growth strategies for various industries at Deloitte Consulting.
  • Advised Fortune 500 companies on hostile mergers and proxy contests.

Lisa Nestor, Director of Partnerships

  • Master’s in Business Administration from UCLA Anderson.
  • Business Development Volunteer with the Peace Corps (Mauritania ’07-’09).
  • Operations and partnerships for a portfolio of research studies at the Centre for Microfinance (India).
  • Led product marketing and growth at Payoff.

Ella Qiang, Partnerships

  • Master’s in Business Administration from UCLA Anderson.
  • Strategic Partnerships Lead in China.
  • Structured financing of infrastructure projects at China Development Bank.

Rafał Malinowski, Developer

  • Programs ins C++.
  • Works on two open source projects – Kadu and Injeqt.

Scott Fleckenstein, Developer

  • Lead Developer at Couchsurfing.
  • Lead Engineer and Chief Architect at OpenFeint (acquired by GREE).
  • Lead Engineer and on the founding team for Get Satisfaction.

 

Verdict

The team and leadership have the relevant experience to execute a global remittance and ICO platform project. Cofounder, Bartek Nowotarski has experience designing highly scalable, distributed systems. Stellar’s chief scientist, David Mazières, founded and develops for a company that secures sensitive data from bugs and untrusted code. Additionally, other primary developers are experienced in open-source project development, large scale platforms, and mobile phone-based gaming networks, which directly correlate with Stellar’s objectives.

There are concerns and red flags regarding Jed McCaleb’s history with Mt. Gox, as he was the developer who created the now defunct, and bankrupt exchange. When Mt. Gox was hacked, it lost about 740,000 Bitcoin of investor funds, which, at the time, was about 6% of all Bitcoin in existence. Jed McCaleb also had a fallout with Ripple when he left, as the Ripple company froze 96 million of his XRP tokens after McCaleb attempted to trade those XRP in one transaction. That attempted trade was around 100x the allowable amount he had been permitted to trade in a week.

 

Advisors

Patrick Collison, Co-Founder and CEO of Stripe.

Greg Stein, Director at the Apache Software Foundation

Matt Mullenweg, Founder and CEO of Automattic, the company behind WordPress.com.

Naval Ravikant, CEO and a Co-Founder of AngelList.

Ronaldo Lemos, Director, Institute for Technology & Society of Rio de Janeiro (ITSrio.org)

Sam Altman, President of Y Combinator.

Dan Kaminsky, Chief Scientist at White Ops.

Bhagwan Chowdhry, Professor of Finance at UCLA Anderson.

 

Verdict

Each of the advisers on the Stellar board brings their unique industry and academic experience to the table. Many of the advisers are CEOs and venture capital investors in some of the most successful and currently relevant technology applications and projects. Such projects include AngelList, WordPress.com, Stripe, and Y Combinator.

 

Partners

IBM Blockchain, empowers businesses to digitize transaction workflow through a highly secured, shared and replicated ledger.

Deloitte, is a leading global finance and technology consulting firm.

Stripe, is a suite of APIs that powers commerce for businesses of all sizes.

ICICI Bank, India’s largest private sector bank by consolidated assets.

Plus nearly 40 businesses, financial institutions, payment aggregators, and technical specialists all committed to supporting a new and inclusive global infrastructure for payments.

 

Verdict

The Stellar project has not only garnered the interest of reputable funds and investors (companies such as Stripe), but also of large and reputable companies (such as IBM and Deloitte), and relevant industries in third world countries. IBM has utilized the Stellar protocol to explore the development of a stable coin pegged to the value of the US Dollar. Stellar has partnered with Deloitte to assist in the creation of the “Deloitte Digital Bank” to facilitate cross-border payment. Stripe provided seed funding for Stellar and has been contemplating adding XLM support to its payment network. Lastly, ICICI Bank is integrating Stellar in its processes to speed up transaction and improve cross-border payments. Additionally, the team has a large list of partners that include from small businesses operating out of Africa, Asia, and Latin America.

 

Marketing & Social

Twitter: 246,000 followers

Facebook: 21,176 followers

Reddit: 93,000 subscribers

LinkedIn: 2,404 followers

Github: 88 repositories, 4 contributors

 

Verdict

Stellar has a large following on Reddit and Twitter and maintains an active community. On Twitter, the project posts on a weekly basis, which includes new partnership updates, meetups, project updates, and more. Its Reddit community has active engagement from community members, as well as articles that pertain to projects that launch on top of the Stellar platform.

 

Red Flags

  • Jed McCaleb is widely criticized for the Mt. Gox crash because he was the developer who created the exchange, and oversaw the platform when 740,000 BTC were stolen from a hack. Additionally, he’s had issues with his previous company, Ripple, who froze his funds after he tried to move an amount of XRP that was much larger than the previously agreed upon weekly transferals.
  • Roadmap is not clearly defined in regards to objective achievements or milestones.

 

Conclusion

Stellar is a company that provides fast, low-cost micro transaction at a global scale, and places an emphasis on safety of data transmitted. It’s a platform that hosts the ability to launch ICO’s and utilizes technology that facilitates ICO needs. One potential red flag is a result of Jed McCaleb’s mishaps with Mt. Gox and issues with Ripple. The leadership and adviser team is successful in both business and academic fields, and Stellar has many business partners that range in scale from startups to multinational corporations. In conclusion, with the technology, partnerships, and infrastructure, it appears Stellar will continue to build upon its foundations.

 


 

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Disclaimer: This is not investment advice, merely our opinion and analysis on the project. Do your own research.

 

Sources

  1. https://www.quora.com/What-is-the-main-difference-between-Stellar-and-Ripple-protocols
  2. https://www.stellar.org/
  3. https://globalfindex.worldbank.org/, Overview, Page 5
  4. http://documents.worldbank.org/curated/en/961621467994698644/pdf/102724-WDR-WDR2016Overview-ENGLISH-WebResBox-394840B-OUO-9.pdf, Page V
  5. https://bitcoin.stackexchange.com/questions/29815/what-is-the-difference-between-ripple-and-stellar/38913#38913
  6. https://www.stellar.org/developers/guides/concepts/exchange.html 
  7. https://www.stellar.org/developers/guides/concepts/scp.html
  8. https://www.stellar.org/about/mandate/
  9. https://www.stellar.org/developers/guides/concepts/inflation.html
  10. https://sludgefeed.com/projects-staging-icos-on-stellar/
  11. https://blockonomi.com/mt-gox-hack/
  12. https://cointelegraph.com/news/ripple-directs-bitstamp-to-freeze-funds-of-former-co-founder-jed-mccaleb

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