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Stellar Lumens (XLM) Fundamental Analysis

Since the emerging crypto asset class is much like venture capital with liquidity, performing a quick market size analysis can provide insights into potential fundamental asset value.

What is Stellar Lumens (XLM)?

The Stellar Network is attempting to create a worldwide financial network open to anyone. The primary use case of the network is to facilitate faster settlement and lower costs of cross border payments. The mechanism to achieve this use case is its digital token “Lumen”. Stellar Lumen (XLM) derives fundamental value from the amount of on-network activity (bridge currency).

Questions to Consider when Investing

  1. Is there a published whitepaper? 

Yes…positive

  1. Is there a detailed development road map? 

Yes…positive

  1. Does it use an open, public blockchain, and is the code published? 

Yes…positive

  1. Is there clear, logical, and fair pricing? 

Yes…positive

  1. How strong is the reputation of the founding development team (Strong, Mediocre, Weak)? 

Strong…positive

  1. How strong is the technology’s differentiator (Strong, Mediocre, Weak)? 

Forked from Ripple (XRP)…neutral

  1. How competitive is the industry the asset is entering (Strong, Mediocre, Weak)? 

Strong…negative

Price Target

Assuming:

  1. The Stellar team delivers on the technology, and adoption occurs.
  2. Stellar Lumens (XLM) is able to gain a 10% share of the daily CHIPS (Clearing House Interbank Payments System) transaction volume, in the next 2 years.
  3. Using total XLM supply, not supply currently in circulation.
  4. Accounting for 1% XLM inflation per year over the 2 year period.
  5. A 30% discount rate is used to bring future price targets (2 years in this report) to today’s dollar values. Although 30% is significantly higher than the current risk free rate, crypto assets must be discounted significantly to account for risk.

The Stellar Network is looking to disrupt the entire global cross-border payments industry. Although total global cross-border payments are in the many trillions of dollars, we chose to focus on a smaller figure: the average daily CHIPS transaction volume. Because XLM is the liquidity mechanism for these payments to settle faster than the current system allows, we use a 10% share of daily volume to build a price target model. We then account for 1% annual inflation in XLM.

Given the assumptions (above) the 2-year Stellar Lumens (XLM) price target is given below:

stellar lumens xlm fundamental analysis