Stellar Lumens (XLM): From Remittances to DeFi — Expanding Blockchain Utility in 2025 / Part 2

Part 2 / Page 1

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4.2 Supply, Demand, and Distribution Mechanics — Deep Dive

Initial Token Supply and Significant Burn Event

At Stellar’s genesis, 100 billion XLM tokens were minted. In a major move reflecting community feedback and strategic recalibration, the Stellar Development Foundation burned 55 billion XLM in November 2019 (Stellar Burn Announcement, 2019).

This burn:

• Reduced inflationary supply pressures.
  
  
• Improved token scarcity and price support fundamentals.
  
  
• Reaffirmed SDF’s commitment to long-term ecosystem health.
  

Circulating Supply Dynamics

Currently, about 23 to 25 billion XLM are in active circulation (CoinMarketCap, XLM Stats).

Circulation reflects tokens:

• Held by exchanges for liquidity provisioning.
  
  
• Owned by retail and institutional investors.
  
  
• Allocated but not yet fully distributed from SDF reserves.
  
  
• Locked in vesting schedules and incentive programs.
  

Inflation Model Deactivation and Economic Impact

Originally, Stellar implemented a 1% annual inflation mechanism, automatically increasing total supply. Users voted via inflation pools on recipients of newly minted tokens (Stellar Inflation Protocol).

However, due to limited community engagement and concerns about supply dilution, this inflation was disabled in October 2019 after an overwhelmingly supportive vote to remove it (Stellar Governance Update, 2019).

The removal of inflation has:

• Stabilized token supply.
  
  
• Shifted the economic model to one based on fixed supply and deflationary forces, primarily through fee burning.
  
  
• Increased investor confidence in XLM’s scarcity profile.
  

Economic Modelling: Supply-Demand Balance

Economic modeling of XLM involves analyzing:

• Token velocity: How frequently tokens circulate in transactions.
  
  
• Burn rate: XLM fees paid and destroyed per transaction, which creates slight deflationary pressure.
  
  
• Demand growth: Driven by network usage, new anchor issuances, and increasing application adoption.
  
  

Simulations indicate that with sustained network growth, fee burning combined with fixed supply can create a net deflationary environment, increasing scarcity and potentially supporting upward price pressure over time (Messari Tokenomics, 2024).

4.3 Inflation and Deflation Mechanisms — Advanced Insights

Even with inflation turned off, Stellar’s token supply is dynamic due to:

• Fee Burning: Every fee paid to the network is destroyed, removing tokens from circulation. Although fees are minimal per transaction, high network volume translates into meaningful cumulative burns (Stellar Fees).
  
  
• Lost Tokens: Tokens held in inaccessible wallets, lost private keys, or dormant addresses represent effective permanent removal from supply, contributing to deflationary pressures.
  
  
• Grant and Development Token Usage: The SDF periodically allocates tokens to fund development and community initiatives, which reintroduces tokens into circulation but under controlled governance.
  
  

The balance of these factors determines the net deflation or inflation at any point, strongly influenced by network adoption rates (SDF Annual Report, 2024).

4.4 Vesting Schedule and Implications — Token Release Mechanics

The distribution of XLM includes vesting schedules intended to:

• Align incentives: Ensuring founders, early contributors, and team members remain engaged over time.
  
  
• Prevent supply shocks: Avoiding large token dumps that could destabilize markets.
  
  

According to public disclosures (SDF Token Distribution, 2020), vesting periods for team and founder tokens span multiple years, typically with linear unlocks over 4–5 years.

The SDF’s portion, reserved for grants and ecosystem funding, is deployed gradually, balancing support for network growth with market supply considerations (SDF Annual Report, 2024).

Investors analyzing XLM supply must consider upcoming unlock events and their potential impact on price and liquidity.

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