Stellar, Early Blockchain Built for Payments, Adds Smart Contracts to Take on Ethereum

Stellar wants to take on smart-contract blockchains like Ethereum with its new Soroban project.

This could, in theory, give a boost to the XLM token, assuming the project gains traction.

A new entrant is coming into the already-competitive arena for smart-contract blockchains like Ethereum, and it has a familiar name.

Stellar, a nine-year-old payments-focused project that comes with its own developer community, is backed by a well-heeled foundation and boasts a standing relationship with the cash-transfer giant MoneyGram. But it was built in an era when blockchains were designed for moving value from A to B and not much more.

A “smart-contracts” project is one where strings of programming code can be stored on a blockchain, similar to a computer – allowing developers to build applications for decentralized finance (DeFi) or other uses. Ethereum, born a year after Stellar, is by far the dominant smart-contracts platform, especially with its growing associated ecosystem of so-called layer-2 networks like Arbitrum, Polygon and Optimism. But there’s a host of competing smart-contracts platforms, including Solana, Aptos, Sui, Algorand and several projects in the Cosmos ecosystem.

Now comes Stellar and “Soroban,” the blockchain’s project to add smart contracts. The Soroban integration, expected later this year, could mark one of the network’s biggest upgrades since it was created in 2014 by founders including Jed McCaleb, who had been a key player at rival Ripple but departed the prior year due to internal conflicts.

“We see decentralized finance as a big part of the future, and we want to enable that for the users of Stellar,” Tomer Weller, a vice president of product at Stellar Development Foundation who is overseeing Soroban, said in an interview.

If the Soroban upgrade leads to substantial uptake by users, ultimately resulting in an increase in activity on the Stellar network, there could theoretically be a fresh source of demand for the project’s native (XLM) tokens. The XLM price has gained 46% this year, trailing bitcoin’s (BTC) 66% rally but beating the 32% rise in Ethereum’s ether (ETH) tokens. (XRP), which is used in Ripple’s payment network, is up 48% in 2023.

Last week, the Stellar Development Foundation (SDF), which supports growth on the network with grants and funding awards, announced that it has inked a deal with Certora, a security platform, to support the new smart-contracts platform. Certora provides developers “with the means to verify their code” to ensure that applications are safe and reliable prior to their release.

Ethereum dominance

Stellar faces long odds unseating Ethereum, whose market value of about $190 billion is about 65 times larger than its own. Stellar’s 30 full-time developers compare with 1,901 for Ethereum, according to Electric Capital’s Developer Report. Decentralized-finance protocols built on Ethereum have combined deposits or “total value locked” of $20 billion, according to DefiLlama. The equivalent figure for Stellar is $18.5 million.

“Even for existing chains with smart contracts, it has proven difficult to attract good projects

so it would be very surprising if they manage to seriously challenge Ethereum,” said Doo Wan Nam, co-founder of StableLab.

Sean Farrell, a crypto analyst for FundStrat, said that “developers and users generally prioritize either security or speed,” and that “those who value security tend to gravitate towards Ethereum (or its layer 2s) while those focused on speed usually opt for Solana.”

Stellar’s “recent entry into the smart contract space faces stiff competition from a wide array of existing solutions,” Farrell said.

Stellar Development Foundation treasury

It’s a little-discussed reality of the blockchain industry that growth is rarely entirely organic; projects often need money to jumpstart development and seed application builders.

And the SDF would appear to have the requisite resources to put behind Stellar’s existential transformation into a smart-contracts platform. The SDF is “more than 100 people strong, working to make Stellar the global payment network standard,” according to its website.

The foundation also boasts an enviable warchest of funds that could be deployed at a time when many blockchain projects are struggling through the current malaise in digital-asset markets, known as crypto winter. According to the SDF’s website, the foundation treasury holds some 22 billion XLM tokens, worth about $2.3 billion at the current price.

Last month, the SDF hosted its own conference in Madrid, featuring a “fireside chat” between foundation CEO Denelle Dixon and the actor Idris Elba.

But Soroban may have been the true star of the conference, with more than 22 sessions devoted to the topic, based on a review of the agenda.

According to a report in July, the SDF is prioritizing its engineering on Soroban. Last year, the foundation established a $100 million “Soroban Adoption Fund” to support developer adoption.

Stellar’s deal with MoneyGram, a Dallas-based company with a presence in more than 200 countries, allows users to deposit cash with an agent and then move that on chain – an on-ramp to DeFi, as it were; no bank account is required, and there’s no need to go through a centralized crypto exchange.

“You can take your cash access through MoneyGram and move from that to a yield-bearing account on a decentralized lending protocol,” Weller said.

Where did Stellar get the name Soroban?

The name Soroban comes from the word for a Japanese abacus, described in a SDF blog post as “compact and minimalist.”

Weller says the Soroban team made conscious design choices to improve on Ethereum’s technical features and security.

Among those was the decision to use Rust as the primary programming language, along with WebAssembly, also known as WASM, as the instruction format. That’s instead of Solidity, the language used to run the Ethereum Virtual Machine, which is the foundation for running smart contracts on the Ethereum, Avalanche, Celo and Fantom blockchains, and many other networks.

WASM is the choice for Cosmos, Polkadot, Near and other chains. Weller said that WASM has key technical advantages that make it a better choice.

Rust is the most common programming language for writing programs for the Solana blockchain.

“Stellar’s decision to build in Rust places it in direct competition with Solana for developer mindshare,” FundStrat’s Farrell said.

Attacking ‘state bloat’

Another push by Stellar is to cut down on “state bloat” or “ledger bloat” – the problem of blockchains getting bigger and bigger without ever deleting data that’s no longer needed.

“If you were airdropped Crypto Kitty in 2018, that’s a piece of info that’s on the ledger, and it’s quite possible that’s a piece of information that nobody cares about, and the entire world has moved on,” Weller said. “But that little bit of information is still there forever.”

Stellar allows some data to expire, arguing that it’s learned lessons from watching Ethereum’s experience with state bloat.

Weller has described the phenomenon as a “second-mover advantage,” since Ethereum would have a hard time retroactively going back and announcing that data might expire.

Soroban went live on a test network on Sept. 20, and Weller said the team is pushing to launch the main network in the next few months. If successful, the launch would represent the culmination of nearly two years of development work, since the plan to bring smart contracts to Stellar was announced in early 2022.

“We’re aiming for release by the end of the year, but we’re also being very conservative in terms of our expectations, in terms of the robustness of this,” he said.

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