Worrying times for Stellar Lumens after 52% XLM burn fails to impress

The Stellar Foundation recently announced a 4 billion XLM free airdrop. They also announced the 1% annual inflation would be canceled and instead all transaction fees would instead be burned. And now we have a major announcement that the SDF have burned 52% of the entire supply of XLM, burning 55 billion tokens from the 105.4 billion overall supply.

While the announcement was met with the obvious little price pump, the 20% pump was dissapointing and is already being dumped off just a few short hours later.

These are indeed worrying times for Stellar with no real adoption, no real new partnerships, existing partners getting cold feet and not much by way of development. What is even more telling (and we can see this in the press release below) is that the foundation are now trying to copy the Ripple model for future expansion, setting aside a good portion of funds for use case investment and independent developer support.

Is all of this too little, too late? Is the entire XLM project dead in the water? The critics are heavily attacking Stellar right now but is it really all doom and gloom for the project?

Or is there actually some little light at the end of the tunnel with the foundation accepting that Stellar is never going to compete with big brother XRP and are now trying to move away from Jed’s failed vision, protect the price point and try and carve out their own tiny but legitimate niche within the cryptocurrency landscape?

Time will tell.

worrying times for stellar after 52% xlm burn

SDF’s Next Steps (Stellar Development Foundation)

November 4th, 2019

Today, in Mexico City, the Stellar ecosystem–a diverse family of entrepreneurs, developers, innovators, thinkers, and builders–is gathered in person for the first time. With so many of us here, Meridian is the perfect setting for a long-overdue update on Stellar’s giveaway programs and to announce a new mandate for the Stellar Development Foundation.

SDF’s purpose is to make Stellar the global payments standard. All of the rest of what we’d like to accomplish–empowering everyday people, transforming the global financial system–follows from the world using the network. Every dollar and lumen we have is dedicated to that end. Whenever we spend money–whether to hire an engineer, travel to meet a partner, extend a loan to a Stellar-built business, or even pay our own rent, we ask: is this moving Stellar closer to adoption as a payment standard? We consider every option and do our best to make the most of the resources at our disposal.

What are those resources? Yesterday, there were about 105 billion lumens in existence, roughly:

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

Stellar isn’t mined, so the lumens now in public hands are there because we’ve worked hard to get them there over the last four years. As for the other two allocations, in time and after a lot of thought, we’ve come to realize they’re too large. SDF can be leaner and do the work it was created to do using fewer lumens. Over the years we’ve also seen that giveaways and airdrops have diminishing effects, especially in the outsized amounts our original plan was designed to support. So a smaller public-facing program would have just as much impact. The network and community around Stellar are now robust enough to allow SDF to carry less weight, too–we’re just a piece of a much larger whole, and the funds we steward should reflect that.

So: we’ve decided to reduce our lumen allocations, and to rededicate what remains to what we now think Stellar needs most. We’ll use approximate numbers here in the text, but the chart and table to follow detail the precise amounts in question.

Just before this announcement, we burned 5 billion lumens from our operating fund. It now stands at 12 billion lumens. This reduction isn’t in any way a retreat from our mission. It’s an acknowledgement that we owe it to the ecosystem, to the network, and to ourselves, to be as efficient as possible in our work. We’ve plotted the next ten years of Stellar’s growth and even with our greatly increased ambitions for SDF, we’re confident these funds will be enough to see us, and the network, through.

At the same time, we’re ending Stellar’s World Giveaway Program (for individual airdrops) and our Partner Giveaway programs, both of which were created at the network’s inception. 50 billion of the 68 billion lumens in those programs have also been burned. We believe the number of lumens we hold now aligns better with our mission. SDF will not burn any additional lumens.

To burn the lumens, we have sent them to a Stellar account with no signers (including a master key weight of 0):

GALAXYVOIDAOPZTDLHILAJQKCVVFMD4IKLXLSZV5YHO7VY74IWZILUTO

We believe the number of lumens now aligns better with our mission. SDF will not burn any additional lumens.

For clarity, this is what remained after these transactions:

All told, there are now exactly 50 billion lumens in existence. Slightly under 30 billion of those are still administered by SDF. That pool is a resource for the whole network. We view these as “Stellar’s lumens”, not so much owned by the Foundation as held by us temporarily to use for initiatives that support Stellar and the ecosystem. Alongside this burn, we’ve developed a new set of strategic objectives for SDF, and we are publicly committing to using them pursuant to the plan below. This new mandate reflects our desire to do more of what has worked for Stellar and much less of what hasn’t. We’ve designed the new mandate with the future of the network foremost in mind, but as you’ll see below we’ve also tried to tie each allocation back to our original vision.

We’re extremely excited about this renewed focus for SDF and also about the transparency we will bring to these efforts. Each allocation will be set aside in its own account before the end of the year, and we’ll publish the addresses, so the Stellar community can track our progress and see our commitment to this plan.

Here’s where we now believe Stellar’s lumens are best spent:

Direct Development

The 12 billion remaining from SDF’s operating fund will be dedicated to an aggressive program of direct development and advocacy for Stellar. In January 2019 SDF had just a handful of employees. We’re now at nearly sixty, and we expect to be at roughly twice that by the end of next year. This allocation represents a ten-year commitment to operating SDF as a robust, active partner for Stellar and the many companies working with Stellar. Over the next decade, we will not only continue working on stellar-core and the network platform above it, but also research new technologies, intensify our policy and legal outreach efforts, build more community tools, and create educational materials and documentation. Given the always-changing nature of our industry, we felt this was truly the minimum responsible funding for what we hope to accomplish.

Building up human capital is a fundamental shift in strategy for the Foundation. For the first five years of Stellar’s existence, SDF was a minimalist organization. In early 2019 we decided to rethink that approach. As the ecosystem has grown, we’ve been more comfortable growing ourselves. We began to offer full-time positions to many developers and projects that might have gotten partnership grants or other support from us in the past. We’ve seen that bringing people in-house ensures that the best talent we can find is immersed and invested in Stellar. Together, we can deliver on a unified roadmap and vision.

The 12 billion lumens for this allocation have been escrowed and will unlock 3B XLM per year for the next four years. That pace gives us latitude for growth and the ability to adapt to market changes, while still keeping our funding in balance with the ecosystem.

Ecosystem Support

2 billion of the lumens left from the partnership program will be dedicated to ecosystem support. That was the original inspiration behind the network’s recently retired inflation mechanism: to allow network participants to “enable novel business models or to fund causes they support.” Inflation might no longer be part of Stellar, but its spirit should be, via the following programs:

Infrastructure grants & indie dev support

1 billion. Stellar’s Infrastructure Grant program supports projects that provide crucial network utility. Stellar.expert, Stellarbeat, and Lobstr are examples of current recipients, and we expect to see this program expand as good stuff keeps getting built on Stellar. This 1 billion xlm allocation commits us to grow the program and extend it for at least the next decade. Our approach to these grants, which are among the most efficient lumens we distribute, is to closely monitor the ecosystem and approach projects after they’ve proven their worth. The only “application” for an Infrastructure Grant is therefore skillful execution and community traction.

The community gets a more direct vote with our Community Fund, which this allocation will also support. And as we discover other effective ways to help independent devs and promote emerging projects, we’ll fund them from this pool, as well.

Currency Support

1 billion. Similar to the Infrastructure grants above, this is an existing effort that has seen enough traction to be formalized into its own program. Apps built on Stellar need reliable currency interfaces. Payments into and out of the traditional money system are the starting place for almost any Stellar use case. This program puts specific bounties on redeemable, fully-backed currency tethers, on deposit/withdrawal endpoints, and on ensuring Stellar’s markets are liquid. This program has helped get new network anchors in Mexico, Argentina, and Nigeria, and we expect more anchors in more regions soon.

Use-Case Investment

The other 10 billion from the original partnership allocation will go to identifying and fostering sustainable Stellar use-cases. Stellar is unique among blockchains because our network requires (and is particularly well-suited for) connections to existing financial infrastructure and enterprise. Our partnership grants have brought some great businesses to the platform, but we’ve increasingly seen advanced and high-potential projects like OXIO and Franklin Templeton come to Stellar with little or no partnership engagement at all.

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.

But sometimes long-term alignment is necessary, say, for a particularly large integration. For those cases, we’re moving to an ownership model. That will happen in two ways, both drawing their funding from our old partnership allocation.

New Products

2 billion. SDF will build and own some projects either itself or through subsidiaries. Filling gaps in the ecosystem benefits everyone. Users need products that need anchors that need users and so on. For the sake of the network, SDF should be willing to risk being a first-mover in that cycle. Where we see an opportunity to jumpstart a positive feedback loop with a product ourselves, we’ll do so.

One such SDF product is already underway. Right now, we’re assembling an intentional collection of anchors in Latin America and building an app around them. The eventual product, to be launched in early 2020, will be a non-custodial, cross-currency savings and payment wallet. As much of its code and infrastructure as possible will be open to everyone–for example, our wallet sdk already one public benefit of the build. The currency connections we’re bootstrapping for the app will be available to any other Stellar product. And, 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.

Stellar Enterprise Fund

8 billion. This fund is a leaner, reimagined version of our old partnership program. These lumens will not be distributed as grants, but instead used to either acquire or invest in businesses that have potential for the Stellar ecosystem. Direct investments and acquisitions will give the Foundation special influence over our funding recipients–leverage that the grant structure lacked.

These contributions will be made in the Foundation’s name. SDF itself doesn’t have shareholders and pays no dividend, so whatever yield the Foundation earns from its contributions will be returned to this Fund to make additional contributions to the broader Stellar ecosystem.

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.

User Acquisition

Finally, because giveaways like airdrops have been the least effective programs for Stellar, we’re only keeping 6 billion lumens from the original World Giveaway pool. Those will still go toward the giveaway’s original intent: to drive awareness and adoption, but they’ll be deployed in these new ways:

Marketing Support

2 billion. Indirect support like marketing, PR, and communications, is important to the Stellar ecosystem, and SDF can play a role in coordinating this work. We know this has been a blind spot for us in the past. 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. And, in fact, doing great work means you should be out there telling your story. Going forward, we will be more aggressive in marketing our basic technology and the many good projects already on Stellar.

In-App Distributions

We still intend to put 4 billion lumens in the hands of everyday people, but we want to do it through the apps that they’re already using, not through come-one-come-all giveaways. Therefore the lumens in this pool will go only to fund user acquisition for Stellar-built apps and services that have already shown traction in the marketplace.

These lumens might be distributed as airdrops, as on Keybase, or they might go towards more subtle forms of direct user support, like, offsetting onboarding (KYC) fees or deposit fees. The end goal of this allocation is twofold: to get more lumens out in the word, so people can use them. And to increase the number of people for whom Stellar is a day-to-day tool.

One thing we’ve been careful to ask ourselves through this process is: why burn at all? Obviously all the above could just as easily have been funded through SDF’s original programs, and funded with many, many lumens to spare. What we always came back to is, we should only keep what we’re confident we can actually use. And use relatively soon, at that–in the next ten years. That’s the proper scope for the Foundation. The ecosystem is already moving ahead on its own, alongside SDF rather than driven by us. We were never meant to be and would never want to be a perpetual custodian for Stellar’s programs. Getting to our goal and still having lumens at the end would serve no purpose.

At the same time, working backward from a set amount, to derive a plan from an arbitrary number, also serves no purpose. Trying to create programs around 85 billion lumens, just because that’s what we happened to have, felt turned around. So we turned it right. We detailed everything SDF could do to contribute to Stellar; we thought hard about the minimum responsible funding these activities would require–always being mindful of how quickly things can change in crypto; and then we added those numbers up. Everything else, we decided to eliminate. Those 55.5 billion lumens weren’t going to increase the adoption of Stellar. This bottom-up process was both enlightening and liberating. For the first time we felt confident enough to actually commit to an irrevocable burn and to commit ourselves irrevocably to a plan. So here we are doing that. We’re excited to enter this new phase of Stellar’s growth, and we’re excited to have you along with us. Thank you for reading.

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