Why 55 Billion XLM Coins Were Burnt and How Did That Affect the Price Rise?

Stellar native token (XLM) has seen a significant rise of 35% in the last few days, going from $0.062 to $0.081 since 31st October.

As most traders didn’t expect such growth, we looked at what is the Stellar protocol, why the organization has taken such a decision, and why it had an impact on the price.

The Stellar Story

In 2014, Jed McCaleb, founder of Mt. Gox and co-founder of Ripple, launched the network system Stellar with former lawyer Joyce Kim. The Stellar protocol is supported by a nonprofit organization, the Stellar Development Foundation.

It is an open network for storing and moving money, a decentralized blockchain-based protocol for digital currency to fiat money transfers, and allows cross-border transactions between any pair of currencies. It allows anyone to issue assets, settle payments, and trade.

The organization has always stood out for its several collaborations. In 2016, Deloitte announced the integration of the Stellar protocol in their Digital Bank operations as a cross-border payments application, and in 2017 IBM partnered with the Stellar Foundation to also facilitate cross-border transactions.

At the end of September 2018, Stellar launched its long-awaited decentralized exchange (DEX) StellarX, “The first decentralized crypto platform with global fiat gateways. You can trade bitcoin for Euros for the Chinese Yuan on StellarX. That’s not possible anywhere else”.

The Lumens, abbreviated and known as XLM, are the native tokens of the Stellar network. One hundred billion lumens were created at launch as part of the protocol’s design and must be used for its operations.

They had so far an interesting monetary policy and crypto-economics: after the first 100 billion XLM tokens were distributed, new coins got added until now at no cost to the circulation at a rate of 1 percent per year. 

The protocol distributed these lumens every week to accounts that got over .05 percent of votes from other accounts in the network. This inflationary mechanism has rewarded users proportionately to the number of votes submitted. For example, if an address received 5 percent of the vote, they would receive 5 percent of that particular week’s inflation reward.

We’re writing in the past because the Stellar Development Foundation announced in Mexico City today that their policy toward these rewards will now change and let’s see how:

The Foundation has burned five billion Stellar Lumens (XLM) coins from its operating fund as well as an additional 50 billion coins from its World and Partner Giveaway Program. The foundation claims that it “owes it to the ecosystem, to the network, and to ourselves, to be as efficient as possible in our work.”

The total supply of the tenth-largest cryptocurrency by market capitalization, Stellar Lumens (XLM), was literally just cut in half in an unprecedented move in the history of blockchain.

How was the operation deployed?

Out of the 105 billion lumens that were in existence until yesterday,

  • 20 billion were out in the world
  • 17 billion in SDF’s operating fund
  • 68 billion remained earmarked for giveaway programs administered by SDF

The organization burnt 5 billion from their operating funds as they believe the network and the community are now robust enough to allow SDF to carry less weight and that in the next ten-year-ambitious-plan, the remaining 12 billion will be enough to sustain it.

The other 55 billion were burnt from the giveaway programs that were consequently canceled. The airdrops that Stellar owners were receiving, as per their monetary policy described above, will then be ended and what remains will be reinvested, as stated in their announcement here.

The decision to burn coins follows an earlier proposal by the SDF to disable the inflation mechanism of the network, as it did not seem to benefit the projects that are building on the network.

Whenever a similar event happens in the crypto world, it’s always unpredictable what the reaction of its supporters and investors will be.

XLM Chart Post Coin burn

Stellar Lumens (XLM) 24-hour price action post coin burn (Coinmarketcap)

In this case, the Stellar community seems to have reacted very positively to the news as the price of the coin has spiked and continues to grow, currently trading at $0.082248 and 0.00000878BTC.

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