After leaving Ripple in 2013 due to internal conflicts over vision, Jed McCaleb, along with partner Joyce Kim, forked the Ripple protocol and launched the Stellar project in 2014. With the creation of the non-for profit Stellar Development Foundation (SDF), the team aimed to “promote global financial access, literacy, and inclusion…and create an open and affordable financial system where people of all income levels can access simple-to-use, secure, and low cost financial services.” The Stellar Development Foundation was created in collaboration with Stripe CEO Patrick Collison. Stripe invested $3 million in seed funding and received 2 billion Stellar Lumens (XLM) in exchange. At launch the network generated 100 billion XLM and featured a 1% annual issuance rate.
In 2015, Stellar redesigned its consensus protocol following a ledger fork in 2014 that rolled back hours of transactions. It’s new and current consensus protocol called “Stellar Consensus Protocol” was developed by Stanford professor David Mazières, chief scientist of the SDF. In 2017, Jed McCaleb and Brit Yonge launched Lightyear as a for-profit entity of Stellar, that would build a universal payment network on Stellar. In 2017, Stellar announced a grants program that would award partners up to $2 million worth of Lumens for project development.
In October 2019 Stellar removed the 1% annual issuance rate from the Stellar protocol stating that it was not benefiting the projects building on Stellar.
In November 2019, the Stellar Development Foundation announced it burned more than 55 billion XLM (~55%) tokens as it moves away from airdrop programs. Previously the foundation had retained 68 billion XLM earmarked for giveaways in order to grow the community. Citing a declining utility from airdrops, the SDF burned 50 billion of those tokens along with 5 billion of the 17 billion previously held in its operating fund. The burn reduced the total supply to 50 billion XLM of which SDF’s ownership of the total dropped from XLM supply from 85% to 60%.
XLM is used a medium of exchange within Stellar network. XLM is also used to pay transaction fees in order to stop spammers from clogging on the ledger. Every account in the Stellar network most hold a minimum of 1 XLM to ensure authenticity. XLM also acts as a bridge currency within the Stellar Distributed Exchange, leveraging its nature as the only asset in the Stellar network that does not require an anchor, allowing it to pair with any other asset to provide liquidity.
Stellar Consensus Protocol (SCP) is a modified version of Federated Byzantine Agreement (FBA). In an FBA system, there are quorums and quorum slices. Quorum is a set of nodes sufficient to reach agreement. Given that an FBA system is open participation, meaning that participants can join and leave as they please, it is impossible for the system to know how many nodes are sufficient for quorum without knowing the identities and amounts of nodes in the system. Thus, FBA introduces a concept of quorum slices nodes. A quorum slice is a subset of a quorum that can convince one particular node about agreement. In an FBA system nodes broadcast and individually determine which quorums slices to trust, and build their own quorum based on the information they have at hand. In FBA systems it is crucial that these quoroms overlap to ensure the network reaches consensus. Ripple for example, provides a list of trusted validators to use in order ensure there is overlap when participating in the Ripple Consensus Protocol (RCP).
Consensus in FBA systems is reached through a multi round process where validators share ledger candidates between each other, adding and subtracting transactions until their candidate proposals match what their validators in their quorom slice proposed. Once a supermajority is reached, each server independently computes a new ledger hash from the agreed-upon set of transactions and compares results. Once a super majority of validators agree upon the hash of the new ledger candidate, the ledger candidate is considered final.
SCP differentiates itself from RCP in that validators can choose their own quorom slices rather than using a pre-defined one (from Ripple). Furthermore, rather than relying on a super majority of nodes for consensus SCP introduces notions of validator quality, where validators are weighted based on trustworthiness and reliability, and validator grouping, where validators are grouped by organization. SCP posit these additions allow for stronger quorums.
The Stellar blockchain consensus mechanism is called Stellar Consensus Protocol (SCP), an implementation of the Federated Byzantine Agreement (FBA). The FBA is a fairly new consensus mechanism pioneered by Ripple. The SCP is the first provable safe FBA blockchain protocol.
An FBA allows nodes to choose which peers the trust based on intrinsic or extrinsic factors set by the nodes. This dynamic creates network-wide quorums as individual nodes relay and verify network activity information. FBAs rely on “quorum slices” to reach consensus—subsets of a quorum that can convince an individual node to agree with the “slice.” Stellar nodes can choose their own quorum slices.
To attack the Stellar network, a reputable institution would need to control 51% or more of the network’s trusted nodes. Stellar disinventivizes this by financial rewarding honest actors in the network via fees and other rewards. Stellar also adds an element of reputation and social identity by keeping network actors as known entities, which incentivizes financial institutions to maintain the trust of their peers.
Some of these trusted financial institutions are called Anchors, a crucial part of the Stellar blockchain network. Anchors maintain wallets with fiat and XLM balances to allow currency exchange. Anchors control the fees they charge for network peers to use their services, and users can pick which anchor manages their exchanges.
The Stellar blockchain also supports launching native assets similar to issuing tokens on Ethereum. Compared to Ethereum, Stellar aims to offer faster transactions and lower network fees. All assets on the Stellar blockchain are not traded only by exchanging credits across between accounts in the network that are managed by anchors.
Stellar is an open source source protocol whereby anyone can review and contribute to the development of Stellar’s core code. New changes or standards start as proposals divided into two categories: Core Advancement Proposals and Stellar Ecosystem Proposals. Core Advancement Proposals (CAPs) are suggested changes to the core protocol of Stellar. Stellar Ecosystem Proposals (SEPs) deal with changes to the standards, protocols, and methods used in the ecosystem built on top of the Stellar network. Ultimately protocol changes are “ratified” on-chain when they are accepted by a majority of the network validators.
Nevertheless, despite independent contribution to the project through CAPs and SEPs, a full-time team at the SDF performs the majority of protocol and ecosystem development. The SDF sets the project roadmap, acts as a steward of the Stellar network, and builds constructive relationships with governments and financial institutions worldwide. The Stellar Development Foundation (SDF) is a non-profit dedicated to supporting the growth and development of Stellar. SDF was created in collaboration with Stripe, which provided $3 million in seed funding, and is financed by Stellar Lumens. SDF has three boards: the Board of Directors, responsible for governance decisions and XLM distribution; the Architecture Board, responsible for technical initiatives; and the Expansion Board, responsible for ecosystem growth and regulatory issues.