What does XLM mean? How does XLM achieve cross-border payment?

XLM, or Stellar Lumens, enables fast, low-cost cross-border payments by connecting financial institutions on the Stellar network, using a decentralized consensus protocol.

May 12, 2025 at 01:07 pm

What does XLM mean? How does XLM achieve cross-border payment?

XLM, or Stellar Lumens, is a cryptocurrency that serves as the native asset of the Stellar network. The Stellar network aims to facilitate fast, reliable, and low-cost cross-border payments. XLM plays a crucial role in maintaining the network's operations and incentivizing participants. In this article, we will explore what XLM means and how it achieves cross-border payments.

What is XLM?

XLM, also known as Stellar Lumens, is the native digital currency of the Stellar network. The Stellar network was founded in 2014 by Jed McCaleb, one of the co-founders of Ripple, and Joyce Kim. The primary goal of the Stellar network is to connect financial institutions and enable them to move money quickly, reliably, and at a low cost. XLM serves as a bridge currency, facilitating transactions between different currencies on the network.

How Does XLM Facilitate Cross-Border Payments?

XLM achieves cross-border payments through the use of its decentralized network, which connects banks, payment processors, and individuals. The Stellar network uses a consensus protocol called the Federated Byzantine Agreement (FBA), which allows for rapid transaction validation. Here’s how XLM enables cross-border payments:

• Asset Issuance: Financial institutions can issue assets on the Stellar network, which can represent various currencies like USD, EUR, or even other cryptocurrencies. These assets are then used for transactions.

• Path Payment: The Stellar network uses a feature called path payment, which automatically finds the best path to convert one asset into another. For example, if a user wants to send USD to someone who wants to receive EUR, the network will find the most efficient route to make this conversion happen.

• Anchors: Anchors are trusted entities on the Stellar network that hold real-world assets and issue corresponding digital assets on the network. They play a crucial role in facilitating the conversion between digital and fiat currencies.

• Low Transaction Fees: Transactions on the Stellar network are extremely cost-effective, with fees typically around 0.00001 XLM per transaction. This makes it an attractive option for cross-border payments.

The Role of XLM in the Stellar Ecosystem

XLM is essential for the operation and security of the Stellar network. It serves several key functions:

• Transaction Fees: Every transaction on the Stellar network requires a small fee, which is paid in XLM. These fees help prevent spam and denial-of-service attacks on the network.

• Minimum Balance Requirement: To create an account on the Stellar network, users must hold a minimum balance of 1 XLM. This requirement ensures that accounts are not created and abandoned, which could negatively impact the network's performance.

• Incentivizing Participation: XLM can be used to incentivize participation in the network. For example, anchors and other participants might be rewarded with XLM for their services.

How to Use XLM for Cross-Border Payments

To use XLM for cross-border payments, follow these steps:

• Set Up a Stellar Wallet: First, you need to set up a wallet that supports the Stellar network. Popular options include StellarTerm, Lobstr, and the official Stellar Desktop Client.

• Acquire XLM: You can purchase XLM from various cryptocurrency exchanges such as Binance, Kraken, or Coinbase. Once you have XLM, transfer it to your Stellar wallet.

• Create an Account on the Stellar Network: To send and receive payments, you need to create an account on the Stellar network. This can be done through your wallet by generating a new account and funding it with the minimum balance of 1 XLM.

• Initiate a Transaction: To send a cross-border payment, you can use the path payment feature. For example, if you want to send USD to someone who wants to receive EUR, you can initiate a transaction from your wallet, specifying the amount of USD you want to send and the EUR you want the recipient to receive. The Stellar network will automatically find the best path to convert your USD to EUR.

• Confirm the Transaction: Once you initiate the transaction, it will be validated by the Stellar network's consensus protocol. The transaction should be completed within a few seconds, and the recipient will receive the desired amount in EUR.

Advantages of Using XLM for Cross-Border Payments

Using XLM for cross-border payments offers several advantages:

• Speed: Transactions on the Stellar network are processed in seconds, making it ideal for real-time payments.

• Low Cost: The transaction fees on the Stellar network are minimal, making it a cost-effective solution for cross-border transfers.

• Accessibility: The Stellar network is open to anyone, making it easy for individuals and businesses to participate in cross-border payments.

• Security: The use of the Federated Byzantine Agreement ensures that transactions are secure and reliable.

Real-World Applications of XLM

XLM has been used in various real-world applications for cross-border payments. Some notable examples include:

• MoneyGram Partnership: Stellar has partnered with MoneyGram to enable faster and cheaper cross-border payments. Users can send money through the Stellar network, and MoneyGram facilitates the conversion to fiat currency at the receiving end.

• IBM World Wire: IBM's World Wire payment network uses the Stellar network to facilitate cross-border payments. This partnership aims to streamline and reduce the cost of international transactions for businesses.

• Flare Networks: Flare Networks uses the Stellar network to provide decentralized finance (DeFi) solutions, including cross-border payments.

Frequently Asked Questions

Q: Can I use XLM to send money to any country?

A: Yes, XLM can be used to send money to any country that has a participating anchor or financial institution on the Stellar network. However, the availability of anchors and the ease of converting XLM to local currency may vary by country.

Q: How secure are transactions on the Stellar network?

A: Transactions on the Stellar network are secured by the Federated Byzantine Agreement (FBA) consensus protocol, which ensures that transactions are validated quickly and reliably. Additionally, the use of cryptographic keys adds an extra layer of security to prevent unauthorized access to accounts.

Q: Are there any limitations to using XLM for cross-border payments?

A: While XLM offers many advantages for cross-border payments, there are some limitations. The availability of anchors and the ease of converting XLM to local currency can vary by country. Additionally, regulatory compliance and the need for users to understand how to use the Stellar network can pose challenges.

Q: How can I track the status of my XLM transaction?

A: You can track the status of your XLM transaction using a Stellar blockchain explorer such as StellarExpert or StellarScan. These tools allow you to enter your transaction ID and view the transaction's progress and confirmation status on the Stellar network.