Crypto Asset Statement: XLM (Stellar Lumens)
Last updated: March 29, 2023
About this Statement
CatalX CTS (“Catalyx” or “we”) strives to provide our users with information to assist in understanding crypto assets that are offered for trading on the Catalyx platform (the “Platform”). One of the crypto assets we offer on the Platform is Stellar Lumens (XLM). This summary sets out certain key information about XLM as well as some of the risks involved in trading it. While we tried to describe the key features of XLM here, this summary doesn’t provide all relevant information on XLM. We encourage users to perform their own research in order to understand any crypto asset that they intend to trade on the Platform.
History & Characteristics of XLM
What is Stellar Lumens (XLM)?
Stellar is a platform known for moving money across borders efficiently and at virtually no cost using blockchain. It was co-founded in 2014 by Jed McCaleb, the same person who created Ripple (another blockchain-based payment system), and Joyce Kim, former lawyer and former managing partner at Sparkchain Capital. Stellar was designed as a way to create better access to financial services and let “people participate in a worldwide, stable, financial network regardless of where they live”. In July 2014, the Stellar network went live and created 100 billion Stellar Lumens (XLM), (then called “stellars”). There was no initial coin offering held.
XLM is the native token used on the Stellar network distributed ledger, which allows users to exchange money between users. The token’s main use is to act as a bridge between other currencies. Thus one user can send XLM as one type of currency, i.e. dollars, pesos, euros, yuan, etc. and the other end user receives it as a different currency. Put in another way, Stellar works similarly to an online payment platform such as PayPal, but its distributed ecosystem and native cryptocurrency make cross-asset, cross-border transactions easier, faster, and more cost-effective. This makes Stellar designed for stablecoins and allows users to create a redeemable, tradable representation of any asset.
The supply of lumens is controlled by Stellar and thus cannot be mined. Therefore, transactions are approved through a consensus protocol between accounts, which Stellar calls its “Stellar Consensus Protocol” (SCP). Stellar uses a Federated Byzantine Agreement (FBA) algorithm which relies on nodes to identify other trusted participants to work together until a network level agreement is reached, which then enables the transaction to be validated. The consensus protocol is decentralized. Stellar requires users to hold a minimum balance of 1 XLM in their account with the minimum per-transaction fee at 0.00001 XLM to deter large-scale bad behavior.
This overview provides a summary of certain risks associated with XLM. We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading XLM, and in addition, does not take into account an individual’s particular situation or risk tolerance. Purchasers are encouraged to conduct their own research prior to trading any crypto asset on the Platform. Catalyx users should read the Risk Disclosure Statement for additional discussion of general risks associated with crypto assets made available through the Catalyx platform.
Possible Increase in Transaction Fees. Stellar uses a different model to calculate transaction fees than other coins. Stellar's transaction fee is fixed at 0.00001 XLM per transaction. Transaction fees depend on the value of each XLM, if the price of XLM increases, so too will the transaction fees on the Stellar Network.
Loss of Validators and No Rewards. The Stellar Consensus Protocol does not offer rewards to the individuals who help build consensus. Energy is spent running nodes and validating the system. If there is no reward or incentive, then there is no assurance that individuals will remain acting as validators. The loss of validators could cause the Stellar Network to perform slower and experiencing significant delays.
Concentration of XLM Supply. The supply of XLM tokens is highly concentrated. The Stellar Development Foundation, which is responsible for Stellar’s technical advancement and business development, controls over 60% of XLM supply in circulation. This large concentration of ownership within one entity creates a risk that the Foundation’s decision making can have serious consequences over the value of XLM.
Please note that these risks and the associated summaries or overviews provided for each in the Risk Disclosure Statement are not intended to be an exhaustive discussion pertaining to all such risks and, in addition, there may be other risks that come with exposure to XLM. We encourage all Catalyx users to perform their own due diligence to assess the risks associated with XLM and to determine whether this level of risk is acceptable to them.
How Catalyx determines which Crypto Assets to List
Catalyx has established robust policies and procedures to review each crypto asset offered for trading on the Platform. Among other information, we review available public information relating to the crypto asset on the following topics prior to making a determination on whether a crypto asset will be listed:
The history and characteristics of the crypto asset including whether the crypto asset was launched by ICO;
Analysis of the founders or inventors of the crypto asset/related network and a review of their ongoing involvement with crypto asset/network;
How the crypto asset functions including a review of its utility or purpose;
The market liquidity for the crypto asset;
The current and proposed governance of the ecosystem on which crypto asset operates with a focus on the level of decentralization of such ecosystem; and
The position taken by any regulator with respect to the crypto asset including any enforcement action taken against the crypto asset, the related network, or the founders.
In addition to the above we also conduct an analysis of factors weighing in favor or against the crypto asset being deemed to be a security based on Canadian securities laws.
No securities regulatory authority in Canada has expressed an opinion about XLM or any of the other crypto contracts or crypto assets made available through the Platform, including an opinion that XLM itself is not a security and/or derivative. Changes to applicable law may adversely affect the use, transfer, exchange, or value of any crypto contracts or crypto assets you hold on the Platform.
Certain statutory rights under securities legislation in Canada do not apply in respect of this Crypto Asset Statement.