The parabolic popularity of cryptocurrencies in 2021 has forced banks to consider potentially launching their own central bank-backed cryptocurrencies or CBDCs. Countries like China have already developed centralized digital currencies, contributing to more FOMO for governments across the world. It is this FOMO that can potentially create more visibility for crypto projects like Stellar.

The Stellar network was launched in 2015 as an open-source blockchain designed to facilitate cross-border payments using tokenization. Anyone can use the platform to send money directly to a friend or family member no matter where they are in the world, in a matter of seconds, as long as they have a Stellar address.

The Stellar blockchain facilitates transactions by allowing users to send tokens backed by fiat, which are then converted to the fiat currency of choice that the recipient wants. This tokenization mechanism facilitates rapid transfers that are extremely cheap. The tokenization feature can also enable the tokenization of other types of assets such as gold or silver, a solution that might be useful to central banks that want to roll out their own CBDCs.

The Stellar network’s tokenization process is built into its network protocol and the process itself leverages third-party companies called Anchors, which link the blockchain with traditional finance systems.

The role of Stellar Lumens on the Stellar blockchain and its price-performance

Stellar Lumens or XLM, are the native tokens on the Stellar blockchain. They are used to facilitate transaction fees on the network. 100 billion XLM were pre-mined before the network was launched and they had an annual inflation rate of 1%. However, half of the tokens were removed from supply in 2019 and the inflation rate was eliminated.

Roughly 23 billion XLM tokens are in circulation while the remaining tokens are retained by the Stellar Foundation. The supply is still large especially compared to other cryptocurrencies like Bitcoin, and it might be the reason behind the token’s low price.  XLM is currently trading at $0.33 after tanking from its all-time high of $0.79 in May this year.

The price has largely been affected by bearish sentiments in the overall crypto market this week. If the downturn continues, then it will likely gain support around the 0.28 price level. Note that the selling volume has been decreasing and the Stochastic RSI is currently in the oversold zone, which points to an increased probability of reversal.

A reversal might be good for the coin but things get complicated as far as the long-term outlook is concerned. Another reason for the coin’s low value might be the fact that no coins are mined and no rewards are attached to running a node. This might be a reason why retail traders are not so interested in XLM. However, institutional players such as SatoshiPay and IBM who are invested in Stellar’s success participate in running the nodes. Fortunately, running nodes on the network is very affordable.

If financial institutions such as central banks decide to choose Stellar as their preferred blockchain to roll out CBDCs or tokenized assets, they will likely also participate as node runners. Such developments might contribute to higher values for XLM but that remains to be seen. Securing such developments is no easy task because there is a lot of competition from other blockchain projects that can support CBDCs.

Central banks may also decide to develop their own blockchain networks from the ground up. Right now there is a lot of uncertainty regarding network adoption for Stellar, and it is no surprise that XLM has been performing so dismally, coupled with the lack of widespread awareness about such projects.