XLM vs. XRP (Stellar vs. Ripple): The 2021 Full Comparison
2020 and 2021 have been eventful years in the world of XLM and XRP, the two super-fast payment coins that are competing for a share of the global remittance market.
The coins are perceived as being quite similar, leading many to ask which project is best, Stellar or Ripple.
Putting aside the obvious question of whether XLM or XRP tokens will go up more in terms of price, we can look at the recent fundamentals of both Ripple and Stellar, to see what the future might hold for these two payment coins that have such an entangled history.
Ripple vs Stellar
Probably the main reason that crypto enthusiasts compare these two projects is that they have a similar mission of disrupting cross-border financial payments.
One of the key differences between Stellar Lumens and Ripple is the type of user each project is targeting. Stellar wants to work with unbanked individuals around the world while Ripple is focusing on building close partnerships with banks to help them move money globally.
Another thing that the two projects have in common is their founder, Jed McCaleb.
Ripple and XRP were founded as a collaboration between McCaleb and software developer Ryan Fugger. Their vision was to create a crypto network that wouldn’t be dependent on the energy-intensive mining process like that of Bitcoin.
However, disagreement between McCaleb and the rest of the Ripple team led to McCaleb departing. In 2014, along with Co-Founder Joyce Kim, McCaleb created Stellar instead.
Later on, Ripple came in for a public bashing when the company canvassed Bitstamp to freeze McCaleb’s 96 million XRP exchange holdings, as the crypto community saw such a move as being centralized and pro-censorship, much like the behaviour of the legacy financial system that crypto is supposed to replace.
McCaleb’s XRP holdings run much deeper than those held on Bitstamp however, and Ripple’s fears were perhaps justified by persistent dumping of hundreds of millions of dollars worth of XRP by their former CTO.
In 2021, the history between Ripple’s new corporate management and McCaleb can now be considered old news, as the company has bigger things to worry about.
Ripple XRP in 2021
The SEC (American Securities and Exchange Commission) has filed a lawsuit against Ripple for selling 1.3 billion dollars of what it classifies as unregistered securities. The complaint also alleges that both former and current Ripple CEOs, Christian Larsen and Brad Garlinghouse, used the capital raised for funding Ripple’s business activities, and that the pair also ‘effected personal unregistered sales of XRP totaling approximately $600 million’.
This news prompted a handful of large, regulation-compliant exchanges such as Coinbase to delist the XRP token, and caused the price of XRP to tumble as low as 0.18 cents.
Ripple contests that XRP is a currency, not a security, and compares the ruling that XRP is a security as being ‘akin to viewing oil as a security controlled by Exxon’. The company also argues that XRP was issued to investors 8 years ago, at a time when no guidance or regulations had been laid down by the SEC.
Since the case was brought by the SEC, Ripple has won a discovery ruling that will force the SEC to hand over documentation that explains their reasoning in declaring that Bitcoin and Ethereum are not to be considered securities.
The price of XRP has since recovered to as high as $1.77 cents, and the currency has been relisted on the Phemex exchange, but this does not mean that the company are out of the woods yet.
This perhaps is why Ripple is seeking to broaden its horizons outside of North America, having recently struck a deal with the Novatti digital banking and payments company with the aim of expanding into the South East Asia remittance market.
There was also the XRP / Flare airdrop in 2020, which saw the XRP code being forked in order to form the Flare Network, a decentralized smart contract platform that aims to be many times quicker and more scalable than the Ethereum blockchain. Even though Flare and it’s native Spark token are not hosted on the XRP blockchain, it still opens up XRP for wider use cases.
Global remittance also is still a strong use case for Ripple, should the company overcome its legal battles. When it comes to international payments, traditional banks have to deal with high fees and long wait times as payments travel between multiple parties, and Ripplenet can help reduce these fees and transaction times.
Many well known banks and institutions have a partnership with Ripple, at least on paper, to use it’s RippleNet service for the streamlining of payments and trades, and this is the main reason that XRP has been such a popular cryptocurrency for so many years.
Some of these partnerships include the likes of American Express, PNC, Santander and Moneygram, although in December 2020 Moneygram came out to say that they had actually never used Ripple or the XRP token.
Stats show that hundreds and thousands of transactions are taking place daily on the XRP blockchain, but because of the difference between XRP token and the RippleNet solution, it’s difficult to deduce the quality of these transactions, and to say which of Ripple’s partners are actually using their service, and for what purpose.
Stellar in 2021
The mandate of the Stellar foundation remains very much the same as it has been since it was founded in 2014 - to ‘create equitable access to the global financial system’.
The benefits of Stellar for unbanked individuals, aside from being able to send money back home without having to use expensive services like Western Union, also includes the easy conversion of their assets into a raft of different national stable coins, via cooperation with companies such as Wirex, Velo and Stably.
Wirex are developing their own Visa card, which allows cryptocurrency holders to spend up to 12 different currencies anywhere that Visa is accepted.
Stellar has also expanded somewhat beyond payment solutions, by hosting Dapps with alternative use cases, such as the private messaging app Keybase, and SatoshiPay, an online publishing Dapp.
SatoshiPay is particularly interesting, in that it allows users to consume content at a fraction of the cost of traditional paid media. It does this through micropayments, utilizing Stellar’s built-in decentralized exchange and ability to send funds quickly at virtually no cost. Last year, the team celebrated over 1 million dollars worth of content payments.
Stellar’s 2019 burn of 55 billion tokens has made it a better proposition economically, and the project’s token economics are further bolstered from the switch from an inflationary to a deflationary token.
One question that remains for Stellar is if or how they plan to compete with the growing DeFi ecosystem on Ethereum.
Considering that developers who build on Ethereum can plug into a wide range of dev tools and financial capabilities, would they still be happy to build on Stellar and have the ability to simply send, receive and store payments?
Stellar or Ripple?
Both Stellar and Ripple have a number of question marks over their long term future.
A big question mark over Ripple is that RippleNet may have a huge roster of high-profile partnerships in the world of finance, but does XRP? Ripple Labs have taken great care to distance themselves from the XRP token, leaving XRP holders with an asset that has historically had limited utility, with the main use case seemingly being to fund Ripple’s day-to-day operations.
Ripple labs hold roughly 55% of the total supply of XRP, bringing fears of possible negative price action resulting from such large token centralization. The Ripple team have however resolved to stagger the release of this supply over a period of 55 months.
Stellar performs better in this regard, thanks to their more positive token economics, but it can’t be said that Stellar is truly decentralized.
In 2019, the Stellar network halted for 67 minutes due to an inability to reach consensus, caused by a mass outage of the Stellar Development Fund nodes.
In terms of both blockchain architecture and the project development of Stellar, the SDF have an oversized role to play, compared to blockchains that attract more organic developer behaviour such as Ethereum and Polkadot.
Since the 2019 blackout, the Stellar team has made a conscious effort to become more decentralized by launching more validator nodes around the globe, with the end result being that no single entity can bring the nodes to a halt anymore.
There are now 50 validator nodes on the Stellar network, backed up by 66 watcher nodes whose job it is to monitor the network activity, even if they can’t vote.
Despite its reputation as a centralized project, XRP actually trumps Stellar here, with 168 known validators.
Finally, as payment coins, XRP and XLM run the risk of becoming irrelevant if the vision of Bitcoin’s growth on the lightning network comes to pass. They are both currently much faster than Bitcoin, but if this advantage is reduced, one major use case is taken away.
And Stellar may be branching out into hosting DApps, but a fully realised and scalable Ethereum 2.0 would create even more stiff competition for developers.
Both projects do however have strong online communities, and it’s probably thanks to these dedicated HODLers that they live to see another day.
Want to buy some Stellar Lumens and/or Ripple? Exodus wallet supports instant swaps for both cryptocurrencies.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.