Stellar Lumens Fundamental Analysis

Yet another coin that we have not looked at for quite some time now. Stellar Lumens!

We took a little break from viewing Stellar Lumens after its dismal price action throughout the end of 2018 as well as 2019.

Thus, we’re going to take more of a holistic approach to this price analysis by attempting to look at all facets of the Stellar Lumens project before making any specific judgments about its price action in the future moving forward.

Let’s start by doing a quick fundamental analysis of Stellar Lumens.

Fundamental Analysis

One of the most anticipated features of Stellar Lumens (over the long-term) was the potential implementation of the Lightning Network.

This was announced way back in March 2018:

Lightning on Stellar: Technical Spec and Roadmap

We want Stellar to become the world’s digital payment rail. We’re already the most deployment-ready of the major platforms (see the below chart), but given the scale of the future we see for Stellar, we know we need to keep pushing our technology forward.

 

Toward the end of 2018 (October), there were further announcements about its implementation that got investors very excited as well:

Starlight: payment channels on Stellar – Interstellar – Medium

Interstellar is pleased to announce a preview release of Starlight, an implementation of bidirectional payment channels on Stellar. Payment channels allow parties to transact privately, instantly, and securely, while paying zero fees. Normally, making a payment on a network like Stellar involves publishing details of the payment to all observers, paying a small fee, and waiting for the network to reach consensus and confirm the payment.

Zerononcense even did a deep dive review that same month to try to ascertain why Stellar Lumens was implementing the Lightning Network:

Why is Stellar Implementing the Lightning Network?

Many have long since anticipated the full implementation of Lightning Network compatibility with the Stellar Network by the end of 2018 (Q4). For those that do not know, the Lightning Network is supposed to be a separate protocol (that word protocol is contingent upon who you ask), that was originally manifested circa 2015 as a…

The reason why Zerononcense conducted this research report was because Stellar Lumens had originally posited itself as a superior alternative to other options in the crypto market (Bitcoin included) because:

A) They have settlement finality

B) The settlement times of Stellar Lumens were supposed to be infinitely quicker than what Bitcoin or other PoW cryptos could provide.

C) They have a quasi-staking mechanism

Lightning Network, conversely, was originated by Joseph Poon and Thaddeus Dryja as a potential state-channel layer that could be built upon the main Bitcoin protocol in order to enhance its scalability.

Thus, Zerononcense wondered aloud in the report why a cryptocurrency that had allegedly been built for speed, efficiency, and versatility was so eager to add on the Lightning Network. It seemed as though there was no reasonable need for Stellar Lumens.

The conclusion that Zerononcense came to was that Stellar Lumens was implementing the Lightning Network in order to add smart contract capability, which isn’t a bad idea, in itself. Obviously, a bit of a different implementation would be needed versus what will eventually be built on top of Bitcoin, but overall, it seems that the Lightning Network would be a helpful mechanism for the Stellar Lumens blockchain to help ensure that it becomes “Turing complete”.

Stellar’s Proposed Plan and Justification for the Lightning Network

Here is an article that was posted on the Stellar Lumens website in 2018 regarding their future Lightning Network integration: 

Below are two excerpts from that article that provide a more in-depth perspective on why Stellar was/is looking to integrate the Lightning Network with the Stellar Lumens protocol:

Specifically, it appears that Stellar Lumens had plans of implementing the {Bump_Sequence} feature on their protocol using the Lightning Network.

What is the {Bump_Sequence}?

From their LN press release:

The relevant GitHub link can be found here:

New operation proposal: Bump Sequence · Issue #53 · stellar/stellar-protocol

Description Bump sequence allows to bump forward the sequence number of the source account of the operation. If the specified bumpTo sequence number is greater than the source account’s sequence number, the account’s sequence number is u…

3

As noted in the  that was cited, the Zerononcense research team took the liberty of diving into the press release (as well as the GitHub and any other technical documents) associated with the integration of LN for the Stellar Lumens protocol, and eventually came made the following conclusion:

“It appears that the primary motivation behind this code development was to grant the Stellar Network smart contract compatibility, and if that is the case, then that makes sense.

The need for this flexibility in the protocol appears to be reflected in this  where a user exclaims that the language which Stellar was written in (C++, to our knowledge) is not designed to facilitate the Turing completeness property that a blockchain (like Ethereum) would be required to possess in order to allow users to manifest contracts that contain conditions (i.e., if Amy does X, Bob receives Y).

IBM Announced That it Would Be Using the Stellar Lumens Protocol to Create a Stablecoin

Perhaps the biggest news for Stellar Lumens in 2018, was the announcement by the famed, U.S. company, IBM, that they would be using the Stellar Lumens protocol to issue their own stablecoin:

IBM is experimenting with a cryptocurrency that’s pegged to the US dollar

IBM has teamed up with financial technology start-up Stronghold on a cryptocurrency that’s pegged to the U.S. dollar. The tech giant has put its weight behind a so-called “stablecoin,” a digital token that, in principle, is tied to an existing government-backed currency, in order to reduce the volatility associated with virtual currencies.

This announcement came in July 2018, and for many in the crypto community, this served as one of the most substantive pieces of news that came out that entire year.

However, it had little to no bearing on the price of Stellar Lumens throughout the rest of the year. A big part of this was, of course, due to the deep bear market that crypto was experiencing. However, now that the bear market is officially over, it does beg the question of why this news or any subsequent announcements regarding IBM’s work on the Stellar Lumens protocol has had any tangible impact on the coin’s price action.

In fact, as recently as three months ago (March 2019), IBM announced that they had an inked an agreement with six different banks to use the stablecoin product that they had bulit on top of Stellar Lumens’ protocol:

IBM Signs 6 Banks to Issue Stablecoins and Use Stellar’s XLM Cryptocurrency – CoinDesk

Announced Monday, six international banks have signed letters of intent to issue stablecoins, or tokens backed by fiat currency, on World Wire, an IBM payment network that uses the Stellar public blockchain. The network promises to let regulated institutions move value across borders – remittances or foreign exchange – more quickly and cheaply than the legacy correspondent banking system.

Despite the fact that this news came on the precipice of a major boom in the crypto market valuation, it appears that the news has had little to no effect on Stellar’s overall valuation in comparison to some of its peers (Bitcoin, Litecoin, Bitcoin Cash, Cardano, etc.).

The product that IBM is building is called ‘World Wire’ and supposedly it facilitates the following:

Source: https://www.ibm.com/blockchain/solutions/world-wire

Yet, even despite the fact that Stellar Lumens is essentially the underpinning of this program, there does not appear to be a lot of buzz around the cryptocurrency.

In fact, Ripple, a cryptocurrency that purports to be doing the exact same thing, has managed to gain more attention and keep its name in the headlines consistently more often than Stellar Lumens has.

Stellar Partnered With Blockchain.com

In a somewhat controversial move (due to what is involved with the giveaway), Stellar Lumens did partner with Blockchain.com in a widely publicized and marketed giveaway campaign.

Essentially, any and all individuals that signed up with Blockchain.com (i.e., provided their information) would be given free Stellar Lumens tokens.

This did not necessarily have the intended impact for Stellar Lumens for a few reasons:

  1. Investors were not necessarily fond of the idea of handing over their personal information to Blockchain.com simply to receive $25-$50 worth of free Stellar Lumens tokens.
  2. Investors were not necessarily fond of the idea that an additional 125 million+ Stellar Lumens tokens would be given away to, in essence, raise the total circulating supply and create additional sell pressure which would inevitably suppress the price, to some extent, over the campaign’s lifespan.

Stellar Lumens’ Numerous Issues

Stellar Executive Shake-Up

In March 2019, Stellar Lumens introduced a new executive (CEO) among their ranks:

Stellar Foundation Hires Mozilla Exec as Its New CEO – CoinDesk

Longtime Mozilla Chief Operating Officer Denelle Dixon has officially joined the crypto ecosystem. Dixon has joined the Stellar Development Foundation as CEO of the nonprofit organization, which promotes the top-10 cryptocurrency Lumens (XLM). She succeeded the project’s creator, Jed McCaleb, who has moved to the role of chief architect, in which he’ll focus on protocol growth and adoption strategies.

The individual in question was ‘Denelle Dixon’, former CEO of Mozilla. Given the fact that Mozilla has been a long-standing, reputable company in the internet sphere, her addition to the Stellar Lumens team was not problematic, in itself.

However, Jed’s removal or “role change” did conjure a few questions in the community. Many speculated that Jed’s ‘role shift’ was due to Stellar’s generally ineffective price action.

Stellar’s Blockchain Goes Down For a Brief Period of Time

Perhaps coincidentally, the Stellar Lumens blockchain goes down shortly after the installment of the new Stellar CEO, Denelle Dixon.

This, of course, led to a wide array of headlines claiming that Stellar Lumens was not truly ‘decentralized’:

Stellar’s Blockchain Briefly Goes Offline, Confirming the Project Lacks Decentralization

The Stellar network went offline for over an hour, raising concerns about decentralization.

As a sidenote, these headlines convey the general ignorance of the cryptosphere when it comes to technologies such as Stellar Lumens, because it was always known that Stellar was running a federated consensus. And, as such, these structures can never be truly decentralized. They are no different than PoS, PoA, dBFT, Tendermint or any other protocol that has a similar functionality of validators and nodes on a network.

Coinbase Addition

Coinbase recently announced that it was adding Stellar Lumens (which did little to nothing to seriously propel Stellar Lumens’ price action).

Again, this addition to Coinbase had little to no impact as a catalyst for greater price action for Stellar Lumens.

Additional Stellar Lumens Facts

  • Stellar Lumens is still down -86.5% from its ATH (January 3rd, 2018). This isn’t the worst for the T10 cryptos, but its definitely lagging behind a solid amount of them (i.e., EOS, Bitcoin, Litecoin, and Ethereum).
  • Stellar Lumens USD appreciation (to date) throughout 2019, is only at 5.83%. That is the worst in the top-10 thus far.
  • Market sentiment metrics for Stellar Lumens show nothing remarkable.
  • (Traded) Volume is below average for the T10 cryptocurrencies.

Conclusion

To say that Stellar Lumens leaves much to be desired would be an understatement at this point in time.

One could argue that, based on the metrics, Stellar Lumens has consistently proven itself to be the worst long-term investment among all coins in the top 10 (marketcap ranking-wise).

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