Stellar (XLM) More Than Payments - Decentralized Finance (DeFi) Too

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Cross-border payments may be Stellar’s forte, but there’s much more to this blockchain than meets the eye. Beyond facilitating fast, cheap, and secure cross-border transactions, Stellar’s suite of use cases includes a range of decentralized finance (DeFi) applications.

This article uncovers the hidden gems of Stellar’s blockchain development, guiding you through its DeFi use cases, fintech applications, and innovative solutions for real-world financial problems.

What Is DeFi, and Why Is It Important?

DeFi refers to the use of blockchain technology to develop financial services that are open, transparent, and accessible to anyone. DeFi applications aim to eliminate intermediaries, reduce costs, and increase efficiency in the financial sector.

Using smart contracts (self-executing agreements that run on the blockchain), DeFi applications can provide users with more security, privacy, and flexibility than traditional financial institutions. It is the democratization of finance, empowering people to control their assets directly.

DeFi also makes it possible for anyone to create and participate in new financial products and services, enabling innovation and experimentation.

What Makes Stellar a Good Platform for DeFi?

Launched in 2014 by Jed McCaleb, the co-founder of Ripple, Stellar was created to connect people with low-cost financial services that improve their lives.

Stellar is the ideal network for DeFi because:

  • It can process transactions in seconds and handle thousands of transactions per second.
  • It charges a nominal fee of 0.00001 XLM (~ $0.000003) per transaction, regardless of the size or destination of the transaction.
  • It facilitates multi-currency transactions using its native asset, lumens (XLM).
  • It has a built-in decentralized exchange (DEX) that allows users to trade any asset issued on the network.
  • It supports various transactions, including payments, offers, options, escrow, atomic swaps, and multi-signature accounts.
  • It has a robust and secure network that uses a consensus mechanism called Stellar Consensus Protocol (SCP), which relies on a set of trusted nodes to validate transactions and reach an agreement on the state of the network.

Together, these features make Stellar one of the best platforms for developing and deploying DeFi applications.

Stellar: The Playground for DeFi Fintech Blockchain Development

Originally conceptualized as a secure and efficient platform for international transactions, Stellar’s foundation lies in public key cryptography. However, as the blockchain industry evolved, so did Stellar’s role in fintech and DeFi.

In keeping with its goal of enhancing the global financial system, Stellar readily supports fintech companies with blockchain technology to develop efficient and secure solutions. Dubbed “Stellar for Fintech,” this initiative is driven by the ultimate goal of easing the movement of currency worldwide.

Stellar for Fintech is defined by three core tenets:

1. Compliance

Stellar is inherently built with compliance features emphasizing safety and transparency, such as a public ledger and a global anchor directory.

Each anchor on Stellar’s anchor directory is a regulated financial institution, money-service business, or fintech company. These organizations are connected to traditional banking systems, enabling Stellar-built apps and services to link users to a compliant financial infrastructure.

2. Decentralization

True to the ethos of crypto and blockchain, Stellar is decentralized. Stellar’s decentralization means no central authority governs the work of companies building solutions on its network.

There is also no restriction on who can build on Stellar. Everyone, from independent developers in Brazil to regulated financial institutions in Austria, is welcome.

3. Tokenization

Stellar’s network enables the tokenization of real-world assets like fiat currency. Some examples of these assets include Euros, BTC, US dollars, Mexican pesos, Argentinian pesos, Brazilian reais, and Nigerian naira.

With this feature, issuers can handle deposits, redemptions, and compliance. In turn, fintech developers can focus on building strong end-user experiences for their customers.

Smart Contracts

To complement FinTech developers' work further, Stellar built a developer-focused smart contract platform called Soroban.

With Soroban, DeFi developers and users can automate financial agreements, paving the way for decentralized lending, yield farming, and decentralized exchanges (DEXs).

Stellar Token Development and Wallet Solutions

Where smart contracts are the foundational building blocks of DeFi, tokens are the lifeblood that keeps blockchain operations running. Stellar thus gives developers the freedom to develop their tokens on the network, representing assets like cryptocurrencies, fiat currencies, or even commodities.

In September 2023, Stellar announced the Stellar Wallet SDK. Built by the Stellar Development Foundation, this self-service tool will enable fintechs to develop their own Stellar-compatible wallets with minimal expertise.

As a result of the Stellar Wallet SDK, fintech blockchain development on Stellar will expand even further., As developers will need less time to set up wallets, they can direct their focus towards development instead.

Real-World Use Cases of Stellar in DeFi

Some of the real-world use cases where Stellar-powered blockchain solutions have made a significant impact include:

Efficient Cross-Border Payments

Stellar’s core use case lies in cross-border payments. Available 24/7/365, Stellar’s cross-border payments solution includes:

  • Remittances
  • Payrolls
  • Business invoicing
  • Treasury management
  • Social payouts
  • Enterprise payouts
  • Merchant settlements

Designed to rapidly settle international payments at a fraction of the cost of traditional banking systems, Stellar is preferred by businesses and individuals looking to streamline their global transactions.

Remittance Solutions

High fees and slow processing times have long plagued remittance services. The Stellar Development Foundation (SDF) has thus built remittance solutions on the Stellar network that prioritize speed and cost-effectiveness.

By connecting to Stellar, you gain access to its full anchor network. This network contains fully licensed fiat acceptance and distribution partners, facilitating real-time and near-instant transactions.

Furthermore, the cost of transferring funds via the Stellar network is minuscule at 0.00001 XLM (~ $0.000003).

Trading Applications

Stellar’s blockchain technology has also been leveraged to create trading applications. Specifically, decentralized exchanges (DEXs) were built with Stellar’s blockchain, enabling users to trade a wide range of assets without relying on centralized intermediaries.

The decentralization of these exchanges adds an extra layer of security and trust to trading.

Examples of Stellar-based DEXs include StellarX, Lumenswap, Interstellar, and StellarTerm.

Stellar DeFi Services With Stellar

Beyond cross-border payments, Stellar has firmly positioned itself as a leader in DeFi. Providing fintech developers with the infrastructure to build blockchain-based applications, Stellar has enabled them to develop their own smart contracts and tokens.

Whether you’re an amateur investor looking to explore new opportunities or an experienced veteran seeking to diversify your portfolio, XLM is one asset you should keep within your sights.

Ready to take part in Stellar’s financial revolution? Head over to Bake and purchase your first batch of XLM now.

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