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I’ve contended that the blockchain technology that underpins cryptocurrency excites me more than a particular coin. The Stellar Lumens (CCC:XLM-USD) partnership with MoneyGram International (NASDAQ:MGI) offers further evidence of why I hold this belief.
After the announcement, XLM skyrocketed from 31 cents to 36 cents per coin. The altcoin briefly went to 42 cents before settling into its current range around 34 cents.
You could say this is just another day at the office for cryptocurrencies, and I might agree with you. There’s no question that if you owned XLM the day before the MoneyGram announcement you’ve done quite well. However, the MoneyGram partnership is not the first announced by the Stellar Foundation. Nor do I believe it will be the last.
I’m more interested in the long-term narrative, and I see that as bullish for the Stellar Lumens Foundation. I’m just not sure what it does for XLM as a coin.
Stellar Lumens Has a Clearly Defined Use Case
I appreciate the simplicity in the use case for Stellar Lumens. The company is taking a situation we can all understand and providing an elegant solution.
In the case of Stellar, it allows individuals to make cross-border exchanges of money in seconds as opposed to days and it does it for less cost. It’s like Venmo on a global scale which I’ll admit is exciting to think about.
I could send money to someone anywhere in the world and they would receive it in their native currency in almost real time.
This is where the company’s token, the Lumen (XLM) comes in. I can use U.S. dollars to purchase digital representations of those dollars (i.e. Lumens) that I would send via the blockchain. The recipient would receive the Lumens and then convert them back to their native currency.
Stablecoins Friend or Foe
I outline (and perhaps oversimplify) the use case for Stellar Lumens because of its partnership with MoneyGram. Under the terms of the agreement, the Stellar Foundation will develop a payment bridge that streamlines money transfers.
What’s less clear to me is if Lumens are required for the transactions. I’m thinking the answer is no and here’s why. Stellar also has a partnership with the fintech company Lightnet, and Lightnet is also collaborating with MoneyGram.
Lightnet focuses on addressing the global remittance market in Southeast Asia. This would seem to be an ideal application for Stellar Lumens because it includes millions of unbanked workers who face exorbitant fees to send money home to their families.
As Lightnet reminds us, the issue of money transfer is annoying to many in the United States. In developing nations, it’s a rigged game, and Stellar can help level the playing field.
Lightnet doesn’t require Stellar’s native XLM token to make these transactions. This was made clear by Interstellar CEO Mike Kennedy who said using XLM could be an option, but it wouldn’t be necessary since the transactions being made are crypto-agnostic.
This is because Stellar Lumens supports the use of stablecoins to eliminate volatile price fluctuations. This is an issue that Josh Enomoto referred to in a recent article about Stellar Lumens.
MoneyGram is also planning to use a stablecoin. In this case, the USD Coin (CCC:USDC-USD) for settlement of the transactions. The way I read it, that makes XLM agnostic to these transactions.
Is There a Bigger Picture for XLM?
This idea that the Stellar blockchain can be used without the need for the Lumens goes back to where I started this article.
Crypto enthusiasts will say that you can’t use the same metrics for cryptocurrencies that you would for equities. However, this partnership with MoneyGram is further evidence that an investment in XLM is an investment in the Stellar blockchain, which some will say is the point.
If that’s the point then you would have to be concerned about the amount of consolidation that is already occurring in this space. You also have to pay attention to Ripple (CCC:XRP-USD) which is likely to become a competitor in this space once it untangles itself from its legal problems.
I could be missing a larger plot for XLM. If so, I’m sure the Stellar bulls will let me know. But if I’m correct, then investors should be sure to keep a close eye on Stellar Lumens. I’ll repeat, I’m fascinated by the use case. I’m just not sure if that’s a long-term moat for the company.
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On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.
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