The Stellar network was designed with a bold vision: to support digital representations of any currency while fostering fast, efficient, and inclusive cross-border payments. At the heart of this innovative blockchain is its native cryptocurrency — the lumen (XLM). More than just a digital asset, the lumen plays a critical functional role in maintaining the health, security, and accessibility of the entire network.
In this guide, we’ll explore the purpose of lumens, how they secure the network, their supply model, and practical ways to acquire and store them. Whether you're new to blockchain or expanding your understanding of decentralized payment systems, this overview delivers essential insights into one of the most accessible and purpose-built digital assets in the crypto space.
Why Does the Stellar Network Require Lumens?
The need for lumens stems from a core principle in distributed ledger design: preventing abuse. The Stellar network is exceptionally user-friendly — so much so that without safeguards, it could become vulnerable to spam, clutter, or misuse as a general-purpose database.
To prevent this, the network introduces minimal friction through two mechanisms:
- A minimum account balance requirement
- A nominal transaction fee
These small costs are not meant to generate revenue but to deter malicious or frivolous behavior. Unlike other blockchains that might use computational puzzles (like proof-of-work), Stellar uses economic disincentives at a micro level to maintain efficiency and scalability.
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This approach ensures that every participant has skin in the game — just enough to discourage spam, yet low enough to remain inclusive for users worldwide.
The Role of the Lumen (XLM)
The lumen serves as the unit of account for all network-related costs on Stellar. It is not tied to any national currency, ensuring neutrality across borders and economic systems. This independence is key to Stellar’s mission of building an open financial infrastructure.
Each Stellar account must hold a minimum balance of 1 lumen, and each transaction incurs a fee of 0.00001 XLM. These values are deliberately tiny — effectively negligible for most users — but collectively powerful in protecting the network from denial-of-service attacks and bloat.
For example:
- Sending money? You pay 0.00001 XLM.
- Creating a new trustline or smart contract operation? Another fraction of a cent in XLM.
This micro-fee structure keeps operations affordable while making large-scale spam prohibitively expensive.
Moreover, because every account holds lumens by default, XLM naturally becomes a bridge asset between different currencies on the network. Even if two users trade euros for yen directly, lumens can facilitate liquidity behind the scenes — enhancing speed and reducing slippage.
How Stellar Accounts Use Lumens
With over 7.5 million active accounts, the Stellar network has grown into a global platform for digital value exchange. Each account, whether held by an individual, institution, or application, must meet the minimum lumen balance to exist on the ledger.
This universal requirement creates a shared foundation for trustless interaction. Because everyone uses XLM for basic operations, it fosters interoperability across wallets, exchanges, anchors, and decentralized applications.
Additionally, lumens enable advanced features such as:
- Multi-signature transactions
- Account freezing (for compliance)
- Automated market makers via Stellar’s decentralized exchange (DEX)
All these functions rely on XLM as the underlying utility token — not for speculation, but for seamless participation in the network’s ecosystem.
The Lumen Supply: Fixed and Transparent
One of Stellar’s most distinctive traits is its transparent and finite supply model — a shift from its original inflationary design.
Initially, 100 billion lumens were created at genesis. For the first five years, the supply increased by 1% annually through an inflation pool. However, in October 2019, the community voted to end inflation, and in November 2019, the total supply was reduced to approximately 50 billion XLM.
Today:
- ~20 billion XLM are circulating in public markets
- ~30 billion XLM are held by the Stellar Development Foundation (SDF)
These foundation-held lumens are allocated strategically to support ecosystem growth — funding development, partnerships, grants, and adoption initiatives. They will be released gradually over time, ensuring long-term sustainability without sudden market shocks.
Crucially, no new lumens will ever be created, making XLM a deflationary-by-design asset after the initial reduction. This scarcity enhances predictability and aligns incentives across developers, users, and investors.
For those interested in deeper metrics — including circulating supply calculations and real-time data — the official Lumen Accounting guide offers full transparency using open APIs.
How to Buy and Store Lumens
Lumens (XLM) are widely available on major cryptocurrency exchanges around the world. From centralized platforms to mobile apps, acquiring XLM is straightforward for both beginners and experienced users.
Buying XLM
You can purchase lumens using fiat currencies (like USD, EUR) or trade other cryptocurrencies (like BTC or ETH) for XLM. Look for exchanges that support high liquidity and strong regulatory compliance to ensure safe transactions.
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Storing XLM
Once acquired, storing XLM safely is essential. Options include:
- Digital wallets: Mobile or desktop apps offering easy access to payments and peer-to-peer transfers
- Hardware wallets: Offline devices providing maximum security against hacks
- Custodial services: Institutions managing keys on behalf of users (common for enterprises)
Popular non-custodial wallets include Freewallet, Lobstr, and Frontier. Always verify wallet compatibility with the Stellar network before transferring funds.
Frequently Asked Questions (FAQ)
What is the purpose of XLM in the Stellar network?
XLM acts as a utility token used to prevent spam by enforcing minimum account balances and transaction fees. It also facilitates cross-currency exchanges by serving as a bridge asset on Stellar’s decentralized exchange.
Is XLM mineable?
No. Unlike Bitcoin or Ethereum (pre-Merge), lumens were pre-minted at launch. No new lumens are created through mining or staking.
How many lumens are in circulation?
As of now, there are approximately 50 billion lumens in existence. About 20 billion are actively circulating, with the remainder held by the Stellar Development Foundation for ecosystem development.
Why did Stellar reduce its supply?
The supply was reduced following community feedback to improve market confidence and eliminate unnecessary inflation. The move reinforced transparency and long-term planning within the ecosystem.
Can I earn interest on my XLM?
Yes. Some platforms offer staking-like mechanisms or yield-bearing products where users can earn returns on their XLM holdings through liquidity provision or lending protocols integrated with Stellar.
Is XLM a good investment?
While XLM’s primary role is utility-driven, its limited supply and growing adoption in global payment solutions contribute to its investment appeal. As with any digital asset, price volatility exists — so due diligence is recommended.
Expand Your Knowledge
Now that you understand the foundational role of lumens in powering the Stellar network, consider diving deeper into related topics:
- Anchor Basics: Learn how regulated financial entities issue digital assets on Stellar.
- Stablecoins: Explore digital currencies pegged to real-world values like the US dollar.
- Smart Contract Basics: Understand how automated agreements function on modern blockchains.
These concepts build upon the infrastructure made possible by XLM — connecting finance, technology, and inclusion in meaningful ways.
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