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Stellar’s New Protocol Upgrade Fixes XLM Inflation Issue

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Stellar’s Protocol 12 upgrade was recently successfully integrated, and with it, the project managed to resolve the problem of inflation for its cryptocurrency, XLM.

Stellar, the project that launched one of the largest and fastest cryptocurrencies, XLM, has just completed its Protocol 12 upgrade. The new upgrade brought a number of improvements to the project’s technology, one of which was disabling inflation for its network’s coin.

The changes were suggested by the Stellar Development Foundation, which also spearheads the project’s development. They presented three core advancement proposals for the new upgrade earlier this month. The modifications were accepted by the majority of the network’s nodes, and the project went along with the upgrade at 16:00 UTC this Monday.

As mentioned, the first big change brought by the new upgrade was cutting inflation. Apart from that, the modifications will also let the senders choose how much they are willing to send for foreign exchange transactions. This has been a common functionality among most traditional cross-border platforms. Up to this point, the amount that is sent was determined by the recipient’s currency of choice. In other words, in case of sending USD to EUR, the amount would have been calculated in EUR.

However, the elimination of inflation was the main focus of the upgrade, and it was an issue that developers have been working on for a year. It was originally proposed in October 2018 by Jed McCaleb, the co-founder of both, Stellar and Ripple.

Jed McCaleb

He stated that inflation is a complex issue that is not serving its original purpose, and the only downside of getting rid of it would be the necessity to burn fees. Until now, the inflation mechanism added 1% of the total XLM supply to the circulating supply each year.

This mechanism was originally added under the assumption that the community would donate to other projects in Stellar’s ecosystem, which is something that banks have been doing to encourage consumer spending. However, it turned out that this was a serious miscalculation, and so the developers decided to change it.

However, one consequence of the change is Binance’s decision to discontinue its Stellar staking program.

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