In 2014, Jed McCaleb, a figure also known for founding Mt. Gox and co-founding Ripple, initiated Stellar in collaboration with ex-lawyer Joyce Kim. The Stellar technology is developed with the goal of linking financial institutions, thereby significantly lowering the cost and duration required for transfers across borders. Initially, Stellar and another payments network deployed the same foundational protocol.
Distributed Exchange
Stellar enables financial operations between diverse currencies through its intermediary digital asset, Lumens (XLM). For example, if Joe wishes to transfer USD to Mary's EUR, he can place an order on Stellar's distributed exchange to sell USD for EUR. This order becomes part of an order book, which the network uses to identify the most favorable exchange rate, ultimately minimizing the transaction fee.
The capability for such diverse currency transactions is thanks to "Anchors", reputable entities that manage deposits and can issue credits, effectively acting as a conduit between various currencies and the Stellar network.
Lumens (XLM)
Lumens serve as the Stellar network's native digital asset, streamlining multi-currency transactions and safeguarding against spam. In the realm of multi-currency exchanges, XLM functions as the cost-effective digital intermediary. Additionally, to combat the risk of DoS (Denial of Service) attacks that could overwhelm the network, a nominal fee of 0.00001 XLM is imposed on each transaction, calibrated to be negligible for users while deterring malicious activities.
Previously, Stellar included an inflation mechanism until Protocol 12, which was intended for account holders to direct newly created lumens towards Stellar-based projects collectively. However, as Stellar expanded, it became evident that the inflation mechanism was not achieving its intended outcomes—account holders were not actively setting their inflation destinations or were joining inflation pools to claim lumens for themselves, and the costs associated with managing inflation payments were mounting. Consequently, a network upgrade was carried out to disable inflation after a validation process, marking the end of the inflation operation within the Stellar network.
https://developers.stellar.org/docs/glossary/inflation/
