Thread by @orbitlens

"What’s the intrinsic value of $XLM? And what drives the price?" One of the most common questions from newcomers to #Stellar ecosystem.
A short answer – $XLM price reflects the locked value. There are other factors, but this one is the most important.
And here is why:

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Stellar Network relies on the account reserve requirements to prevent ledger spam. Every account must contain at least 1XLM to exist on the network. Currently there are about 5 million accounts which effectively means that 5 million XLM are locked on the ledger.

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But reserve requirements are not only for accounts. Each trustline (a connection allows an account to hold some custom token) also requires a base reserve – 0.5XLM. So if an account holds, say, some USDC, EURT, and ABTC tokens, additional 1.5XLM are frozen on the balance.

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Going further, to trade those tokens on Stellar DEX, you’ll need 0.5XLM per active order. Therefore, when a trader decides to set 5 bids on DEX, another 2.5XLM automatically get locked in addition to the order amount.

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It’s worth saying that XLM serves as a medium of exchange. Consequently a significant amount is being held on orders. Market makers have to replenish inventories periodically to maintain pegged asset prices, driving a demand for XLM.

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Speaking of DEX, new Uniswap-like liquidity pools implemented directly on the protocol level will change the supply/demand balance for XLM and other Stellar assets as soon as this update hits the mainnet. Yield farming proved to be a game changer for blockchain tokenomics.

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And finally, adding an additional account signer also pegs 0.5XLM on the account balance. Maybe this doesn’t sound very impressive, but you need to know that multisignature is a fundamental part of Stellar smart contracts.

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Using multisig schemes in combination with time-bound transactions allows implementing intricate logic flows. Stellar TSS initiative advances this concept even further – derivatives, options, insurance, lending, and much more. Smart contracts = frozen XLM.

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There’s no stacking on #Stellar, so there’s no buying pressure from stacking node operators while most POS blockchains have >50% of total supply stacked. On the other hand, there are no miner rewards, so XLM supply is deflationary right now.

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Summing it up, locked liquidity will drive $XLM price over the next decade. Liquidity pools, TSS smart contract servers, layer2 solutions, inter-blockchain bridges, and other technologies coming this year will terraform the landscape of #Stellar ecosystem.

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