In an unexpected move, the Stellar Development Foundation (SDF) cut the supply of Stellar lumens by over half. XLM has posted impressive gains over the last 24 hours after this token burn. At the moment, XLM is up by over 17% whilst top coins like Bitcoin, ethereum and XRP post subtle gains.
While the token burn is bullish for XLM, a few analysts have raised concerns about what this unprecedented burn really means.
Stellar Foundation Reduces Total Supply Of XLM By Over 50%
Stellar Development Foundation (SDF), the non-profit organization behind Stellar Lumens, published a blog post on Monday (4/11/2019) announcing that it had decided to destroy at least 55 million of the XLM tokens.
Before this move, the total supply of XLM stood at 105 billion with only 20 billion being in circulation. The rest was held by Stellar Foundation for funding operations (17 billion) and giveaway programs (68 billion). After the 55 billion XLM burn – where SDF sent the tokens to a Stellar account with no signers – there is now only 55 billion tokens in existence.
The SDF now controls 30 billion XLM tokens: 12 billion to fund its daily operations, another 12 billion for partnerships and 6 billion for giveaways to boost the adoption of XLM. “We view these as “Stellar lumens” not so much owned by the Foundation as held by us temporarily to use for initiatives that support Stellar and the ecosystem,” the official blog post noted.
The decision to burn XLM tokens worth approximately 4.7 billion marks the second change on the supply of XLM tokens. As ZyCrypto reported, Stellar Foundation recently eliminated the inflation mechanism on the Stellar protocol.
XLM Ekes Out Massive Gains
When a large portion of a coin’s total supply is eliminated, that coin sees increased demand, and as a result, the coin’s price jumps. XLM surged by at least 15% within a few minutes.
The tenth largest cryptocurrency has gained momentum following the announcement that Stellar Foundation cut the supply of its Stellar lumens tokens by over 50%. At press time, XLM has gained 17.93% over the last 24 hours to trade at $0.081612. Stellar’s medium-term bias looks very bullish.
The rest of the cryptocurrencies are posting subtle gains. Bitcoin, ethereum, and XRP are up by 1.21%, 1.91% and 2.94% respectively while Litecoin and EOS are seeing gains of more than 6.5 percent. UNUS SED LEO is the only one in the top 20 bucking the trend of a rising market with 1.63% losses.
Not Everyone Is Happy With The Token Burn
Everyone loves a good supply-cutting token burn as the general consensus is that token burns result to deflation. However, as seen, the price of XLM has risen by 17% instead of 100% after Stellar Foundation burned more than half of its supply. As the founder of CoinMetrics, Nic Carter observed, this is goes against the theory that token burns are deflationary in nature.
Additionally, the XLM burn led to concerns about the decentralization of Stellar as noted by analyst Luke Martin. If the Stellar Foundation can cut the supply of XLM, theoretically, in future they can also decide to increase it, which would negatively impact the price of XLM:
“Alts can be great trading opportunities. But it’s hard to justify holding many long-term with no ownership rights and at the mercy of a small centralized team,” said Luke Martin, founder of Coinist Research.
Nonetheless, the Stellar Development Foundation aims to increase the value of XLM through this move and also plans to work towards new development programs, adding:
“We believe the number of lumens we hold now aligns better with our mission. SDF will not burn additional lumens.”