Decentralization has long been one of the defining principles of blockchain technology. The promise of distributing control across a network of participants, rather than centralizing authority in a few hands, has driven innovation and trust in cryptocurrencies. However, not all decentralization is created equal, and myths around what truly makes a blockchain decentralized continue to circulate. Stellar (XLM), a leading blockchain platform focused on cross-border payments and financial inclusion, has taken a unique approach to this debate through its Stellar Consensus Protocol (SCP). By exploring the myths and realities of decentralization, Stellar provides a fresh perspective on blockchain governance and the distribution of power.

The Myth of “More Validators Equals More Security”

One of the most common assumptions in blockchain circles is that the more validators a network has, the more secure and decentralized it becomes. On the surface, this makes sense: with more participants validating transactions, it becomes harder for malicious actors to take control. However, Stellar argues that this is not always the case.

In many Proof-of-Stake (PoS) systems, validators are selected or weighted based on the amount of tokens they hold or control. While this system is designed to be democratic, in practice it often leads to the opposite. Large staking pools, run by well-funded organizations, dominate the ecosystem because they attract the majority of token delegations. This creates a concentration of power in the hands of a few.

Ethereum offers a strong example of this challenge. Despite being the largest smart contract platform in the world, Ethereum’s liquid staking ecosystem has become heavily concentrated. Lido, a dominant staking pool, controls over 85% of the liquid staking market. This concentration reduces diversity and resilience, as too much power rests in the hands of one operator.

Why Proof-of-Stake Can Centralize Power

Proof-of-Stake was originally introduced as a more energy-efficient and scalable alternative to Proof-of-Work. Instead of using computing power, it uses financial stake as the mechanism for securing the network. Yet the economies of scale in PoS often reward the largest players. Big operators can afford better infrastructure, offer lower fees, and attract more delegations. As a result, the system tilts toward centralization, with a small group of validators effectively setting the rules.

This structure challenges the notion of decentralization because power in PoS is essentially purchased. Whoever holds the most tokens has the most influence. While mechanisms like slashing (penalizing bad behavior) exist to maintain fairness, they do not address the deeper issue of concentrated influence.

Stellar’s Alternative: The Stellar Consensus Protocol (SCP)

Stellar takes a different approach with its Stellar Consensus Protocol, which it describes as a “Proof-of-Agreement” mechanism rather than Proof-of-Stake. SCP works on the principle of federated Byzantine agreement (FBA), where validators decide whom they trust and assign weight to that trust.

In this system, power is not automatically tied to how much of the currency a validator owns. Instead, it is based on the relationships of trust built within the network. This means that validators are accountable to the community, and their influence can be revoked if they lose that trust.

Another distinguishing feature of SCP is that it allows the network to continue functioning even if parts of it disagree. Unlike systems where consensus must be achieved by a majority stake, SCP enables overlapping trust networks to move forward, making the system flexible and resilient.

Community-Selected Validators

Transparency is a key feature of Stellar’s approach. The SCP system allows validators to be publicly identified and community-selected. This contrasts with the pseudonymous nature of many PoS validators, where stakeholders may not know who is running the infrastructure or what their incentives are.

By making validators visible and accountable, Stellar ensures that governance is not only decentralized but also community-driven. If a validator misbehaves or acts against the community’s interests, participants can shift their trust elsewhere without forking the network or requiring massive buy-ins.

This adaptability makes Stellar’s model more dynamic than traditional PoS, where power can become locked in by sheer token ownership.

Challenging Blockchain Myths

Stellar’s stance challenges several myths in the blockchain world:

• Myth 1: More validators always equal more decentralization. Reality: The quality of validator distribution and governance mechanisms matter more than raw numbers.

• Myth 2: Proof-of-Stake guarantees fairness. Reality: PoS often results in concentration of power among large staking pools.

• Myth 3: Decentralization only comes from token ownership. Reality: Stellar’s SCP shows that trust-based systems can distribute power more equitably.

Governance and Future Implications

The debate around decentralization is not just academic—it has real-world consequences for security, resilience, and the long-term health of blockchain ecosystems. A highly concentrated system may be more vulnerable to censorship, collusion, or manipulation, undermining the very purpose of blockchain technology.

By introducing SCP, Stellar aims to demonstrate that decentralization can be achieved through community-driven trust rather than financial clout. This approach makes it possible to adapt to challenges without the need for contentious forks, ensuring smoother governance and stability.

For blockchain as a whole, Stellar’s model offers valuable lessons. As more networks confront issues of validator concentration and governance disputes, alternative consensus mechanisms like SCP may become increasingly relevant.

Conclusion

Decentralization remains one of the most important and debated aspects of blockchain. While Proof-of-Stake has become the industry standard, it is not without its flaws—chief among them the tendency to concentrate power among large staking pools. Stellar (XLM) offers a compelling alternative through its Stellar Consensus Protocol, a system based on federated trust and community accountability.

By challenging the myths of decentralization and offering a model where power is community-granted and revocable, Stellar underscores the importance of governance design in blockchain networks. Its approach may not only strengthen its own ecosystem but also inspire broader discussions on how to achieve true decentralization in the digital age.