Monetizing a Stellar project with Inflation

How LOBSTR Inflation Pool will help developers utilize the power of Stellar Inflation

Building a sustainable cryptocurrency business is tough.

Majority of apps in crypto are free to install for end users, while their development and ongoing support requires a lot of resources.

Some projects are charging trading or withdrawal fees; others rely on affiliate fees from third party services — that may include asset listing fees, referral payouts or in-app advertising. However, if you are building an SDK library, or a non-custodial wallet, or DEX on Stellar — your options to monetize and charge any fees may be quite limited.

These challenges are not specific to Stellar, they exist in other blockchain ecosystems as well. Many Bitcoin and Ethereum wallets are struggling to find effective monetization strategy.

In a recent tweetstorm, Vitalik Buterin suggested that wallets should charge additional fees for transactions sent through them to get the funding needed for their development:

Interesting idea, but so far users seem to prefer options which don’t charge any fees.

Inflation in Stellar network

At this point, you might ask what inflation has to do with all of this.

Many users who are familiar with Stellar have heard about community pools like Lumenaut, which allow users to increase their XLM stack by roughly 1% per year by distributing their share of inflation back to participants.

This is possible due to a unique feature of the Stellar network — inflation, a mechanism, built-in at the network level. Each week, new Lumens are printed and distributed among several qualified inflation distribution accounts.

Any Stellar account can nominate any other Stellar account to participate in the inflation payouts by setting the “inflation_destination” property in the metadata of their account.

Each eligible account gets the pro-rata share of inflation payments delivered automatically on a weekly basis. Mechanics of Stellar inflation are described in more details in the docs here.

While pools like Lumenaut allow users to claim their portion of inflation votes to themselves, the vision behind inflation was that it could be used to support the important projects in the ecosystem. Multiple people could point their inflation to the projects they use or the ones they think are important.

Jed McCaleb mentioned this during the recent Q&A in New York:

Enough people voting with small amounts of their inflation votes together could provide the funding needed for a long term sustainable development of the projects.

And this is possible without charging fees on end users. Sounds great, isn’t it?

However, putting inflation to its original use by supporting ecosystem projects still remains a very complicated task.

Why?

Primarily, because of the minimum inflation threshold (or MIN VOTE).

While this parameter makes sense from a technical standpoint, it makes it difficult to start receiving inflation payouts.

If you have 1000 XLM, and you are willing to vote for a project with your inflation — potentially it would receive about 10 XLM per year from your contribution. However, it actually won’t, unless there are A LOT of other people who are doing the same.

Current threshold (MIN VOTE) is about 53,000,000 Lumens (0.05% of total lumens). So in order for the account to become eligible and receive a share of inflation, a total balance of all accounts voting it should be above 53M XLM.

Reaching 53M inflation votes would generate yearly revenue of 530,000 XLM — probably enough to support a small team. But anything below 53M votes would result in zero, as inflation mechanism ignores smaller accounts.

We want to improve this.

How?

LOBSTR and StellarTerm share a single inflation destination address and are among the very few projects that were able to collect enough votes to pass over the minimum votes threshold.

Over 100,000 users have pointed their accounts to our inflation destination and hence are helping us fund our operations and support further development of LOBSTR and StellarTerm.

Now we want to help others benefit from inflation as well by introducing a new inflation pool for projects building on Stellar. Similar, to how community inflation pools distribute the funds back to individual participants, LOBSTR Inflation pool will distribute the funds back to projects that vote for it.

Any project building on Stellar would be able to get access to our inflation pool (by asking it’s users to vote with an additional “tag” that identifies the origin project) and immediately receive their respective share of payouts without worrying about the min votes threshold.

If you’re interested, please leave us a message at https://pool.lobstr.co

We have received a few applications from projects in the Stellar ecosystem and have already started testing the inflation distribution system.

We hope this initiative will help more projects to put inflation to a good use, and will prove to play an important part in the monetization strategy.