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Why Stellar burnt 55 billion XLM and what happens next

Posted: 5 November 2019 12:01 pm
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The burn is just the beginning. The main event is what happens with the remaining funds.

The Stellar Development Foundation has burnt 55 billion XLM tokens, worth $3.5 billion before the announcement, but more like $4.5 billion after it announced the burn.

For perspective, that's about three times Stellar's current market cap.

It means the Stellar Development Foundation (SDF) now holds closer to 30 billion tokens, and the total circulating supply has been cut almost in half.

Before and after

This burn goes right to the heart of one of the most frequent criticisms of Stellar; that it was simply too rich and too much of the total supply was in the hands of the Foundation. It may also be a response to the lacklustre results from a series of immense Stellar airdrops – the largest cryptocurrency giveaway to date.

These airdrops were intended to bring people into the Stellar ecosystem and show them that it's a useful tool. Instead, the vast majority (when they bothered claiming the funds) immediately sold it off.

It showed that you can't just bribe users into the ecosystem and that simply throwing money at problems isn't a successful strategy.

This lesson may have informed the decision to burn such an immense portion of the supply as well as the new strategic direction the SDF has laid out for the remaining funds.

"Alongside this burn, we’ve developed a new set of strategic objectives for SDF," it said.

This new mandate includes the following:

12 billion XLM worth of growth

The SDF is making a shift from being a light-weight minimalist organisation with billions of dollars of crypto in the bank to investing in human capital, bringing talent in-house and becoming a large, growing organisation that still has billions of dollars of crypto in the bank.

A total of 12 billion XLM will be allocated towards this purpose. Those funds have been escrowed and will be released at a rate of 3 billion XLM per year for the next four years.

1 billion XLM worth of grants and indie developer support

The intention is to extend the Stellar indie developer program, which has resulted in creations such as the Lobstr Stellar wallet and much more, for at least another decade.

These grants are "among the most efficient Lumens we distribute", the Foundation noted.

1 billion XLM worth of market-making

A further billion XLM will be put towards anchor encouragement.

In the Stellar network, anchors are the entities that provide fiat currency onramps and offramps.

This part of the program works by providing specific bounties for redeemable, fully-backed currency tethers, ensuring Stellar's markets are liquid.

"We expect more anchors in more regions soon," the SDF said.

10 billion XLM worth of real-world use cases

"After years of working with teams of all sizes, we’ve learned that the best builders are much more inspired by vision and technology than by a one-time infusion of lumens. They see Stellar as a tool, not as a source of funds. So, as we’ve made clear above, that’s where we’re putting most of our focus – on making the network as attractive as possible," the SDF said.

"But sometimes long-term alignment is necessary, say, for a particularly large integration."

2 billion XLM worth of new projects

New products are useful to fill in gaps in the ecosystem.

One example of a product that's already underway is a non-custodial cross-currency savings and payment wallet.

What makes this wallet different to all the other wallets is that it's built specifically to integrate with a collection of Stellar anchors in Latin America, with the intention of presenting a viable cryptocurrency-based money transfer solution, and DeFi-type app for users in the region.

"If the app gets traction, its user base will make connecting to Stellar more attractive for future developers and businesses. All SDF products will have this same ecosystem-first intent, design, and mandate," the SDF said.

8 billion XLM worth of investments

An 8 billion XLM fund has been set up as a reimagined version of the old Stellar partnership program.

These funds will be used to directly invest in or acquire businesses that can contribute to the Stellar ecosystem. Investment returns earned by the fund will be put back into the fund for further acquisitions and investments.

"The companies this Fund will invest in will be selected based on how much we believe they’ll help the whole ecosystem – which parts of their business they’re exposing to the network and how aligned they are with our mission," the SDF said.

2 billion XLM of marketing support

"Partially because blockchain is so overhyped, we’d always taken the stance that our work would speak for itself. But we’ve decided that doing great work and talking about it aren't incompatible ideas," the SDF said. "Going forward, we will be more aggressive in marketing our basic technology and the many good projects already on Stellar."

(Another) 4 billion XLM worth of giveaways

"Giveaways like airdrops have been the least effective programs for Stellar," the SDF conceded, so rather than trying to buy friendship from people who want nothing to do with Stellar, it will perform giveaways in useful Stellar-related apps that people are already using.

They might take the form of direct giveaways, or more subtle forms of support such as offsetting KYC costs or deposit fees for new users.

Stellar prices immediately leapt on news of the token burn, but if these initiatives prove successful, the main event may be yet to come, as the remaining funds are put to work in more meaningful ways.



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Disclosure: The author holds BNB and BTC at the time of writing.

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